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How $1.9 trillion COVID stimulus plan will impact Michigan

man with child
The $1.9 trillion COVID relief plan championed by the Biden administration extends a number of economic benefits to families with dependent children during the pandemic. (Shutterstock photo)

Update: How Michigan communities can, and should, spend billions in Biden stimulus

From extending jobless benefits to adding a financial safety net for the nation’s lowest wage workers, the latest American economic stimulus package to combat the pandemic could start bolstering Michigan’s economy as early as mid-March, economic experts told Bridge Michigan Monday.

The $1.9 trillion American Rescue Plan Act of 2021 returns Tuesday to the U.S. House of Representatives where, if passed, President Biden is expected to sign it quickly. 

Once finalized, waves of benefits will reach Michigan’s families, businesses and communities as the spending plan unfurls. With this stimulus package, the focus aims at lower earners and getting the nation out of COVID-19’s year-long economic grip.

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“This is actually targeted toward the working class and lower incomes,” Chris O’Leary, an economist at the Upjohn Institute for Employment Research in Kalamazoo, told Bridge Michigan on Monday.

Bridge outlines, below, four ways the stimulus package will impact Michigan. 

Among its provisions are tax credits and stimulus payments so expansive that they could reach over 90 percent of the estimated 2.1 million children under 18 in Michigan, according to the Washington, D.C.-based Center on Budget and Policy Priorities.

Individuals — including dependents — will receive $1,400 stimulus payments, under the plan approved by the U.S. Senate Saturday in a party line vote. Individuals making $75,000 or less and couples earring $150,000 or less will receive the full amount. Smaller amounts will be given to individuals earning $80,000 or couples earning $160,000.

Families with children will receive still more incentives in the form of tax credits. The benefits should stretch across the economy, O’Leary said, starting with lower-wage workers. 

“They have a higher proportion of spending that goes to needs versus luxuries,” he said. 

Beyond that, “there’s a lot of cash injection” into the state’s economy. 

While many details remain unknown about how the American Rescue Plan will be allocated in Michigan, Biden said in a statement Saturday he expects the plan to generate up to six million new jobs across the U.S. and add $1 trillion to the Gross Domestic Product. All 49 Senate Republicans, who remained skeptical about some aspects of the plan, voted against it. It passed with 50 Democratic votes.

The Senate vote came shortly after Friday’s U.S. jobs report showed more monthly gains than projected. However, “the economy remains down 9.5 million jobs from February 2020 and will require more than two years of job growth at February’s pace just to get back to pre-pandemic levels,” said Cecilia Rouse, chair of the Council of Economic Advisers, in a statement. 

At $1.9 trillion, the size of the package raised some concerns about whether the economy needed that level of investment. But Democrats said they were determined to have learned a lesson from President Obama’s push for stimulus money following the Great Recession, when the U.S. “underestimated the size of the hold in the economy,” according to Daniil Manaenkov, an economist at the University of Michigan, which Manaenkov said “didn’t go big enough.” 

This time, Manaenkov said, some of the funding can be expected to enter the economy slowly. “It’s possible the money we get today is going to keep funding modest growth… for decades,” he said.

O’Leary agreed that details of the plan will benefit the state and help bridge the time between the remainder of the pandemic and a return to normal economic growth. 

“This should carry us through,” O’Leary said.

Here are four areas where the stimulus plan will notably affect Michigan:

Unemployment 

Jobless workers will continue to receive an extra $300 per week through September 4 under the new relief plan. As of March 1, 859,313 Michigan residents were receiving weekly jobless benefits. 

While it may sound like the extension of a windfall, Michigan’s $362 per week maximum payment hasn’t been raised in Michigan for about 20 years, said O’Leary of the Upjohn Institute. 

At the same time, he said, the average weekly wage is $1,115, while the average benefit has hovered around $300 per week for regular unemployment and $200 per week for people filing under the Pandemic Unemployment Assistance program for part-time, self-employed and gig workers that passed as part of the CARES Act in March 2020. 

The difference between the state’s payouts and its average wage, O’Leary said, showed that the unemployment payment “isn’t really adequate income replacement.”

With the additional benefit, payments are nearly doubled, keeping them at a level where many jobless workers are still able to pay for their household expenses. Senate Minority Leader Mitch McConnell and some other Republican critics say the volume of benefits would make many people reluctant to go back to work

However, O’Leary said, the extension of jobless benefits shouldn’t provide a disincentive to return to work, given that, on average, it’s still far less than the average wage. 

Another benefit coming to jobless workers through the American Rescue Plan is the provision that they will not have to pay federal income tax on their first $10,200 in payments for 2020. That will keep the estimated 700,000 jobless workers who have received extended benefits from having to pay taxes this year on a portion of their benefits during a year when many didn’t work long-term.

Families and health

The array of benefits to families with children distinguishes the American Rescue Plan, O’Leary said. Democrats and anti-poverty advocates Some hope that the changes — which extend into next tax year, depending on the benefit — could be renewed and serve as a more permanent model for future tax structure.

“It’s really a signal about future policy,” O’Leary said. 

The $1,400 one-time payment will be supplemented by a tax credit of up to $3,600 per child.

“All together, it could amount to quite a lot per child,” O’Leary said. “Families … are going to get a real boost.”

Help is also coming for health care spending. Many people who buy their health insurance through the Affordable Care Act will have their premiums capped at 8.5 percent of their income for the next two years. The subsidy will also be expanded to people earning more than four times the federal poverty rate, which is the current cap. For this year, that’s $51,040 for individuals and $108,400 for a family of four.

The expansion is significant, Manaenkov said, and possibly a step toward making it permanent. 

The Senate plan also called for laid-off workers to be able to stay on their employer health program through a COBRA subsidy. Employers can get a tax credit to pay for the full premium.

Education

Michigan’s schools would receive a whopping $3.8 billion from passage of the COVID relief package, on top of about $2.5 billion already allocated to state schools in two earlier relief packages Congress passed in 2020.

That’s $6.3 billion in one year in federal funds to supplement a total state school budget last year of about $15 billion.

Those funds will be used to offset costs connected to the pandemic, such as technology improvements to assist online learning, mitigation efforts inside schools, personal protective equipment and, at some schools, updating ventilation systems.

Under the legislation, at least 20 percent of school funds must be used for efforts to address learning loss during the pandemic. What those efforts look like will be largely left up to individual school districts. Michigan school officials are discussing a variety of efforts, including expanded summer school offerings, longer school days or adding days to the school year, and hiring additional staff to beef up one-on-one and small-group tutoring.

Not all districts will benefit equally from the federal windfall. School funds will be distributed according to federal Title I guidelines, which provide funds to help low-income students. That means low-income districts will receive a lot more COVID relief funds than districts with more affluent students.

A Bridge Michigan analysis found that allocation created per-student allocation disparities of more than 100-fold between some schools in the state, with some affluent schools receiving less than $100 per student, and some low-income schools getting more than $10,000 per student.

Michigan colleges and universities will also receive a portion of $40 billion allocated for higher education nationally in the relief package passed Saturday, though it wasn’t immediately clear how much state institutions would get. The package includes funds for both public and private colleges and their students, with distribution based heavily on the percentage of students at each college eligible for federal Pell grants, which are given to low-income students.

Business and government

More than 200 members of the Michigan Municipal League participated in a discussion on Monday about Michigan’s share of the $350 billion awarded nationally to help state and local governments. 

“There were a ton of questions from our members about it, many having to do with when the money is coming, how it can be used, and how much each community is getting,” said Matt Bach, spokesperson for the MML. “The questions showed how much need there is among our cities for federal support.”

An estimated $10 billion will be coming to Michigan, under a funding formula based on the number of people on unemployment relative to the population, Manaenkov said. 

“That money will have very few strings attached,” he said. 

However, Manaenkov said, there are some likely spending categories.

One is replenishing the Michigan Unemployment Trust Fund, which has been depleted during the pandemic. While the state is forecasting no need to borrow to prop up the fund, its balance fell to about $500 million from the $4.6 billion that was in it in January of last year before COVID struck.  

Contributions to the unemployment trust fund will let the state “avoid future tax increases to businesses,” Manaenkov said.

Money also is likely going to be available to municipalities who’ve lost city income tax revenue and also to shore up budgets of communities that suffer tax declines due to lower commercial property values. 

Manaenkov said he expects municipalities to spend some of the money on “some of the projects that were previously on the back burner,” such as road projects. ''

Direct aid is coming to certain industries, like airlines and large event venues, and federal government employees struggling with childcare, said Manaenkov. There’s also a $28.6 billion grant program for struggling restaurants and bars.

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