Coronavirus Relief Helping to Keep Down Poverty Rate—For Now, Research Finds

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Route Fifty on 6/23/2020 by Bill Lucia

A new report says the CARES Act has offered an important boost to low-income families. But aid will dry up as the year goes on.

Cash payments and the expanded unemployment benefits many Americans qualify for under the coronavirus relief package that Congress passed this spring will help to prevent a sharp rise in poverty rates that would have otherwise occurred, new research suggests.
But the report, from the Center on Poverty and Social Policy at Columbia University, also highlights pitfalls with the household aid provided by the roughly $2 trillion legislation, known as the CARES Act. For one, much of the aid the law extends to households is concentrated in the first half of 2020. And unless lawmakers take further action, many Americans will see much of the extra income support the federal government has extended dry up after July.

Barring a swift economic recovery, the researchers caution that additional federal relief will be crucial to help keep low-income families from falling into poverty.

The virus and measures to control it have dragged the nation into a recession. Even though most states have relaxed forced business closures and stay-at-home orders, segments of the economy still aren’t up to full speed and millions of Americans remain unemployed.

Covid-19 cases and hospitalizations are also rising in some states, which could inhibit people from ramping up their economic activity even if restrictions aren’t reinstated.

The Columbia report looks at two types of “income transfer” programs included in the CARES Act.

One is the recovery rebate, or stimulus check, that the federal government distributed to families and individuals. The maximum amount a single adult could receive under this program was $1,200, with the sum tapering off for those earning over $75,000 a year.

The other form of assistance that the researchers examined was a set of beefed up unemployment benefits.

These included adding 13 weeks to the usual time limit for collecting benefits, which is generally 26 weeks, as well as expanding unemployment insurance to workers it normally does not cover, like those who are self-employed and independent contractors. Through the end of July, the law also added a $600 per week payment as a supplement to standard unemployment benefits.

Basing their estimates on what’s known as the “supplemental poverty measure,” the researchers projected that the annual poverty rate with the nearly 20% unemployment rate seen in April would’ve hit around 16.3% without the CARES Act, up from 12.5% before the crisis.

Under the CARES Act, they estimate that in a “medium access” scenario—where 70% of those who are eligible receive stimulus checks and 60% of those who are recently jobless receive the unemployment benefits they are entitled to—the poverty rate is held to about 12.7%.

The report also includes a “high access” scenario where the poverty rate is even lower, at 11.3% and a “low access” scenario where the poverty rate is 13.8%.

While the researchers describe the household income measures in the CARES Act as “appropriately timed,” they also note that families will see the level of assistance that they are receiving drop in the wake of the one-time stimulus check payment and after the $600 unemployment bonus expires in July.

They point out that even though the infusions of extra cash for households will push some above the poverty line on an annual basis, struggling families could easily end up scraping by on extremely tight monthly incomes as the year wears on.

In addition to this issue, the report points to an estimated 30 million or so people left out from the CARES Act assistance, including young adults in college and high school claimed as dependents for tax purposes, older and elderly adult dependents and immigrants.

People can also hit roadblocks actually getting aid they are eligible for, the report notes, due to issues like complicated unemployment insurance application processes, and outdated technology and overwhelmed staff at state agencies that oversee the program.

In terms of how the federal government could provide additional income support if the economy remains anemic in the coming months, the report suggests additional payments like the stimulus checks, extending the $600 unemployment bonus, or raising and expanding the benefits available through the Supplemental Nutrition Assistance Program, also known as food stamps.

The cost of the stimulus payments and expanded unemployment benefits is already sizable, about $460 billion to $500 billion in federal spending in the medium and high access scenarios in the report. In fiscal year 2019, net federal spending was $4.4 trillion in total.

A full copy of the report is available here.