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American Rescue Plan Act of 2021

Economy Politics

SENATE NARROWLY PASSES $1.9T COVID-RELIEF STIMULUS PACKAGE

 

After a long and strenuous Senate session Friday night and after several amendments, the newest COVID relief stimulus package, this time valued at $1.9T, passed with a 50-49 vote early Saturday morning, March 6th. Senate Democrats used the reconciliation process, which allows budget-related bills to pass with a simple majority rather than the 60 votes typically needed, to pass the bill. 

Highlights of the package, dubbed the American Rescue Plan Act of 2021, including the following:

  • $1,400 direct payments to most Americans
    • These payments have lower income cutoffs than previous direct payments
    • The cutoff for any payment amount is $80,000 for single filers and $160,000 for households with the married filing jointly status –those that fall under those thresholds are eligible but may see a phased-out amount
  • Expanded child tax credit
    • The bill increases the child tax credit to $3,000 per child ages 6-17 and $3,600 per child under the age of 6 – the current credit is $2,000 per child aged 16 and under
    • The bill also makes the child tax credit fully refundable for one year
    • Part of this change involves the IRS providing half the credit via direct payments in July-December of this year
    • The higher credit does phase out at income levels of $150,000 for married filing jointly households and $75,000 for single filers
  • Dependent Care Reimbursement Account (DCRA)
    • For 2021 only: DCRA limit moves up to $10,500 versus the current $5,000 currently
    • Employers themselves would have to allow this change – change can’t be made through your withholdings if employer declines the option
  • Student loan forgiveness
    • Any amount of student loan forgiveness would no longer be considered taxable income and be subject to income taxes – this change would be in effect through 2025
    • This lays out a path for President Biden’s plan to forgive up to $10,000 in student loans tax-free for individuals who qualify
  • Extension of unemployment benefits
    • Additional $300 per week payments would extend through September 6th instead of expiring March 14th 
    • The bill makes the first $10,200 of benefits non-taxable if household income is less than $150,000
  • An additional aid to schools and colleges to assist in re-opening
  • $350B in funds for state and local governments
  • Additional funding for COVID vaccine rollouts 

A notable exclusion from the Senate’s version of the bill is the $15 federal minimum wage. 

The bill will go back to the House for a vote on the amendments Tuesday, and then onto President Biden for signature. These final steps are expected to meet little resistance. 

Will this affect the markets and my investments?

U.S. markets have reacted positively to past stimulus bills and we’ll likely see something similar this week. Although most investors expected a version of this bill to pass at some point early in 2021 and some of this sentiment is certainly included in current prices, the passage through the Senate may bring some added certitude that markets may look upon (at least in the short-term) favorably. Longer-term little has changed. Vaccination and re-opening progress, the Fed’s monetary tone, inflation uncertainty, volatile bond yields, and other factors that have shaped investors’ market expectations this year will continue to move the fragile market forward. With these uncertainties expect continued short-term volatility and maintain a long-term perspective.