On March 11th, President Biden signed into law the $1.9 trillion American Rescue Plan Act of 2021 (ARPA) with about $850 billion allocated to individuals and households to help them stabilize financially. The amount of support to households signals the intensity and persistence of the financial struggle families are facing in the midst of this ongoing pandemic but also highlights that our current system of publicly and privately administered benefits have not met the moment. Prior to the pandemic, these systems were not meeting the needs of millions of workers – disproportionately excluding workers of color, low-wage workers, and workers in non-traditional work arrangements. The pandemic shed light on how broken, fragmented, antiquated and insufficient these systems truly are and their lack of responsiveness and accountability to workers during an economic crisis.
Even before this pandemic, millions of households in America were living financially precarious lives. With stagnant wages, rising household expenses and benefits inadequately filling the gap, nearly half (46.5%) of households reported that their income did not exceed their spending over the course of a year. And for those in households with annual income under $30,000, three out of five were unable to meet their expenses. Now over a year into the pandemic, households continue to struggle with job insecurity, with nearly 19 million workers still utilizing Unemployment Insurance (UI). Households are still facing food and housing insecurity, with 22 million adults struggling to put enough food on the table to support their households and one in five renters behind on rent payments.
To ensure all workers have the foundational supports needed to achieve positive cash flow and live financially secure, economically dignified lives requires us to reimagine a system of benefits that takes a holistic approach to support workers, is grounded in what households need to be financially secure and is guided by four key principles. An integrated, modernized system of benefits must be:
- Inclusive, protecting all workers, irrespective of their work arrangement and employment status
- People-centric, ensuring workers and their voice, life and experience are critical and central to the design and delivery of benefits
- Portable, ensuring continued access and funding as workers experience job loss or transition, enter new work arrangements and piece together different types of work and
- Interoperable, using technology to effectively integrate benefit systems and platforms to ensure seamless access.
The American Rescue Plan offers hope in helping support millions of households by promoting their financial security during this pandemic to help them stabilize. But it also provides insight into what is needed to transform our current system of benefits and an opportunity to learn so we can strengthen the design and delivery of a system of benefits to ensure a more inclusive recovery from this pandemic and resilience in the future.
A Holistic Approach Grounded in What Workers Need for Financial Security
The American Rescue Plan is not only significant in its dollar amount but also in its recognition of the need to take a holistic approach to supporting household financial security – supplementing wage income while also helping reduce household expenses. The very foundation of financial security is income that exceeds expenses, which creates an opportunity for routinely positive cash flow. This not only helps create a buffer against small economic shocks but also the ability to pay down debt, build savings, accumulate wealth, and make financial decisions for the well-being of one’s household. No one achieves financial security entirely on their own, relying on foundational supports from our public and private system of benefits to stabilize, build assets, and protect from large economic shocks. By focusing on the household and what they need for support in this pandemic and how to address that through both our public and private benefit systems, the American Rescue Plan previews the necessary conversation about what our system of benefits needs to look like in the long-term to effectively meet the needs of workers.
With the myriad of challenges households are facing during this pandemic, the American Rescue Plan extends and expands on the income and expense supports previously provided by the Families First Coronavirus Response Act and the CARES Act. It expands upon the previous economic stimulus checks, providing $1,400 per adult and $1,400 per dependent, increasing the amounts as well as expanding eligibility to adult dependents and households with mixed-immigration status. It extends UI support to displaced workers, providing an additional supplemental unemployment benefit of $300 per week, extending benefit access for those experiencing longer-term unemployment, and continuing to support workers that typically do not qualify for traditional unemployment benefits. And recognizing the importance of paid leave, it ensures continued access to this critical workplace support so workers do not have to make a choice between a loss of income and the health and well-being of their households.
The American Rescue Plan also expands the eligibility and value of the Child Tax Credit and the Earned Income Tax Credit. The fully refundable Child Tax Credit provides households with $3,600 for every child under 6 years old and $3,000 for every child 6 to 17 years old, and delivers this support monthly so households have periodic infusion of cash to manage their expenses. It also broadens Earned Income Tax Credit (EITC) for those without children they can claim as dependents.
And while the American Rescue Plan provides significant income supports it also recognizes the need to help households manage their expenses. To support families struggling with housing, it provides $40 billion in renter, homeowner, and homeless assistance. With the ongoing challenges in food security, it extends the 15% monthly increase in the Supplemental Nutritional Assistance Program (SNAP) benefit. It also supports households with dependents by increasing the child and dependent care tax credit and making it fully refundable. And realizing how vulnerable workers are amid a global health crisis – where a loss of a job also meant for millions a loss of health insurance coverage – the American Rescue Plan made COBRA coverage free so people could continue to access their employer-provided health plan without being burdened by the cost of it.
By helping to address these financial security challenges households continue to face to make ends meet during this crisis – and addressing both income and expense needs of households – the American Rescue Plan is projected to have a significant impact on poverty in the United States. Assessing the impact of key components of the American Rescue Plan, overall poverty is expected to decline from 13.7% to 8.7%, with a significant reduction in Black and Hispanic poverty. Poverty would fall by 42% for Black people and 39% for Hispanic people. The supports are also more equitable in nature, increasing after tax income of households making less than $25,000 by 20% while reducing the disparities in poverty rates between households of color and white households.
Signals Importance of Guiding Principles to Create an Inclusive, Equitable System of Benefits
Looking at critical components of the American Rescue Plan, we also recognize both the potential as well as the need for a new modernized system of benefits that is guided by four key design principles – inclusive, people-centric, interoperable, and portable.
- We can improve the financial security of workers if we design supports that are inclusive. Early in this pandemic, we recognized the importance of expanding our existing system of benefits, including paid leave and unemployment insurance, to provide access to those who are disproportionally left out of critical supports. The American Rescue Plan provides more inclusionary supports, such as the expansion of the child tax credit with a move away from a u-shaped credit that penalizes low income households to ensure those who need the support are eligible to receive it. By moving away from the exclusionary and discretionary nature of our current system of benefits we can build systems that more effectively support households based on their actual needs.
- Cash assistance in the form of the stimulus payments highlights the importance of utilizing a more people-centric approach to benefit design. Offering unconditional cash supports recognizes the complexity and uniqueness of households’ financial lives, and the importance of households having the decision-making power to choose how to utilize funds to effectively stabilize. And by making the stimulus checks automatic and reducing the burden of households – who are faced with scarcity of resources including time – to apply and prove their eligibility, these stimulus payments also signal the importance of building systems that are centered and responsive to those they are intended to support.
- If we connect and utilize existing systems for benefit design and delivery, we can create an interoperable system that provides more seamless access to supports for workers. By using the existing infrastructure of our tax system to provide direct payments to households and to expand supports including the child tax credit, we ensure more timely and responsive access to funds in moments of need. If we make our systems of benefits – both public and private – interoperable, we will not only remove the burden on households to apply and prove their eligibility for each benefit, but we would also create opportunities to automate access to supports when existing data – payroll or benefit providers, employers, or the IRS– signals eligibility.
- To ensure continuity of benefits we need to move towards portable systems so supports reside with the worker not their employer. During this pandemic we saw firsthand what happens when a critical support – health insurance – resides with one’s employer instead of with the worker. The American Rescue Plan recognized the loss of this critical support and the costly burden it placed on households to protect their families in the midst of a public health crisis. By providing COBRA coverage for free, the American Rescue Plan ensured continued access to a much-needed support but also highlighted the urgent need to address a core design flaw in our current system of workplace benefits.
While the American Rescue Plan is critical to supporting workers in this economic crisis, it is temporary in nature – with some benefits expiring in September and others providing supports through this year only. We also recognize that it is not intended to – nor can be – exhaustive, and does not address some of the inefficiencies and ineffectiveness in the design and delivery of these benefits. For instance, the delivery of the stimulus checks does not reduce barriers or high fees to access it, preventing many households who need the funds the most from having full access to them. And while households need multiple benefits to stabilize, receiving one such as unemployment insurance can count against their eligibility to receive another such as SNAP, highlighting the importance of a more integrated approach to benefit design and delivery centered in household financial security.
But what the American Rescue Plan does is signal the importance of taking a more holistic approach to supporting household financial security and the potential of such approach on ensuring households recover, in a more equitable way, from this pandemic. Studying the impact of the American Rescue Plan on household financial security will be critical to identifying what is needed and effective in supporting households to stabilize. And key components of the American Rescue Plan also highlight the importance of adopting policies centered on workers and guided by four key principles – inclusive, people-centric, interoperable, and portable – to ensure households not only recover from this pandemic but can also build resilience and thrive. We hope you join us in Benefits21 as we begin to spur market and policy innovation to signal what is both needed and possible to support workers, and as we build towards a future where we have an integrated system of benefits grounded in the financial security and economic dignity of all workers.