Multiple stimulus checks issued by the federal administration during the peak months of the pandemic saved millions from certain starvation. All income dried up from most low-income and middle-income people and the pandemic relief payments were the only source of income during those difficult months.
But the enhanced child tax credit stimulus check was the last of the payments before they dried up in 2022. While the stimulus checks kept a record 11 million citizens out of poverty, it was not sufficient to last them as the pandemic moved out and was replaced by an equally draining tormentor, inflation.
The drying up of the federal stimulus checks coincided with the rise in inflation that picked up pace in the last quarter of 2021. The first quarter of 2022 was worse as it reached a 40-year-old record and crossed the 8.5% mark. Gas, groceries, and utilities were priced out of the roof and people began dipping into their savings to run their households, that is those who had some savings after a cruel couple of years during the pandemic.
While the federal stimulus check issue remains gridlocked due to the obduracy of the opposition Republicans, the need for a stimulus check seems more urgent than ever before.
Given the reluctance of the Biden administration to move ahead anymore at present, it was up to the states to come up with inflation relief support for their residents.
The Child Tax Credit Stimulus Check Reduced Poverty In A Big Way
Families which were receiving the enhanced child tax credit stimulus checks every month between July and December last year were also left in the lurch. The CTC stimulus check had cut monthly child poverty by around 30%. The initial payment in July 2021 kept 3M children out of poverty and this continued with monthly stimulus checks through December 2021.
While this constituted 50% of the total child tax credit payments, the rest 50% are expected to come in after the 2021 income tax filing is completed. The balance installment of the payment, which is between $3,000 and $3,600 depending on the age of the child, will be credited against the taxes to be submitted.
The enhanced child tax credit stimulus check was a bold move that reached over 61M children. Under the American Rescue Plan Act, Congress made three vital changes. It chose to expend 50% of the total benefits in advance monthly payments in the tax year itself. It paid the amount in 6 monthly installments between July and December 2021.
The amount was also enhanced from $2,000 to $3,600 maximum per child for children below 6 and $3,000 for children aged between 6 and 17. That meant either a $250 or 300 stimulus check per month for 6 months and the balance of 50% during filing the 2021 income tax returns in 2022.
Finally, Congress increased the spread of the CTC stimulus check to include a third more of the most deprived children who were excluded because their parents made too little and did not file returns.
A total of 61.2M children benefitted across 36M homes in December. Families received an estimated $4,380 under the enhanced form of the CTC policy against an average of $2,310 they received in the previous edition of it.
The enhanced CTC payments reduced child poverty significantly by 30%. The initial round of the monthly payment in July saved 3M children from the clutches of poverty. And by December, around 3.7M children could stay away from poverty thanks to the Child Tax Credit.
The Expansion Was Significant As It Brought In More Children Under The Policy
The biggest beneficiaries of the CTC stimulus check were children who were totally out of the scheme so far. Under the previous rule, around 23M children were out of the scheme because their parents had to earn at least $36,000 to get the benefit. This left the most deserving children out of the scheme.
But the monthly poverty rate will jump back quickly to the past level as the CTC is withdrawn. Families spent the extra money they received on basic needs including food, school supplies, clothing, utility bills, and rent. Around 91% of beneficiaries spent the money on basic needs. Around 19% of families spent the money on a vehicle payment, 16% spent it on child care, and 17% used it to settle old debts.
How Much Did The Stimulus Check Contribute To Inflation?
Americans managed to stay afloat during the tough years of the pandemic thanks to the $5T pumped in by the federal administration during 2020-21, a large part of it directly to beneficiaries such as households and businesses. Around $1.5T made its way into personal accounts through the stimulus checks and Child Tax Credit payments alone. Other programs such as SNAP sent trillions more to families.
The rapid economic expansion through the direct infusion of cash threw up the possibility of inflation though the present 8.5% rate can not be blamed on one factor. In normal economic expansion, prices rise slowly as money enters the economy. A sudden influx of trillions of stimulus dollars sent up prices that much faster.
The Federal Reserve estimated that by the end of March the government stimulus might have contributed 3 percentage points to the national inflation rate. But a lot of other factors too contributed to the highest rate in over 4 decades. The war in Europe cut off world oil supplies from the second-largest producer of oil on earth. The supply bottleneck created during the pandemic period continues and has led to the scarcity of goods that continues to this day.
The federal stimulus support has dried up and states have stepped in a big way and most are negotiating legislative measures to bring in relief for residents. States like Maine and New Mexico have moved ahead and have legislated to send immediate stimulus checks to residents by June.
The states have relied on a state budget surplus created in 2021 on the back of strong economic growth and also from state and local body funds received under the American Rescue Plan Act signed by President Biden in March 2021. These payments are expected to bring some relief to residents still reeling from the high rise in prices of gas, groceries, and utilities.
