Second Stimulus Check Income Eligibility May Be Capped At $40,000
Yesterday, Senate Majority Leader Mitch McConnell changed his tune and said that a second stimulus check “could well be” part of the next coronavirus relief bill. Equally telling was his follow-up remark: “I think the people who have been hit the hardest are people who make about $40,000 a year or less,” he said.
McConnell’s Second Stimulus Check Comment Noteworthy
The tides have been turning on the odds of a second stimulus check since the House of Representatives passed the HEROES Act and included an expanded second stimulus payment. Republican opposition has started to wane as President Trump and other members of his administration have increasingly, albeit unevenly, voiced support for a second direct payment. However, this is the first time McConnell has even tepidly acknowledged that direct payments may be included. His comments come as the Senate started a two-week recess and on the heels of record high cases of coronavirus across the U.S. and a reversal of state re-opening plans across several states and counties. While still far from a slam dunk, the fact that the Senate Majority leader is making positive comments is a noteworthy development.
McConnell’s Use Of $40,000 Shouldn’t Be Taken Lightly
McConnell’s comments about how individuals earning less than $40,000 a year have been hit the hardest shouldn’t be overlooked. “Multiple sources say McConnell didn’t just throw out $40,000 as a cut-off haphazardly — consensus within GOP is moving that direction, which would sharply limit eligibility,” tweeted Jeff Stein of The Washington Post. In many ways, it could signal how McConnell will attempt to thread the needle between agreeing to a second direct payment to placate President Trump while keeping the overall cost of the next stimulus bill down to mollify fiscal conservatives feigning concern over the mounting national debt.Most Popular In: Personal Finance
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The $40,000 figure is also in line with McConnell’s stated goal of making the next round of stimulus more targeted. The notion of more surgical aid may actually find support across the political aisle. “I think the next round we’ve got to be more targeted to those who are really in need. So I hope we can target this a little bit better to those who have been hit hard because of COVID-19,” Senator Ben Cardin (D-Maryland) said of a second stimulus payment.MORE FROM FORBESDo Americans Even Need A Second Stimulus Check?By Shahar Ziv
Those earning under $40,000 were hardest hit by the coronavirus pandemic. Close to 40 percent of Americans earning less than $40,000 annually lost their jobs in March, when the coronavirus brought parts of the economy to a standstill, according to Jerome Powell, Chairman of the Federal Reserve. Therefore, using the $40,000 as a cutoff would allow Congress to help those were were disproportionately impacted by the pandemic.
Preference For $1 Trillion Bill
McConnell told President Trump recently that the next relief bill cannot exceed $1 trillion. While this is in some ways posturing, it does reflect pressure on McConnell from his conservative base to keep the total cost of the next bill in check. There appears to be some consensus that the relief bill will come in between $1 trillion and $2 trillion dollars, more than McConnell’s gauntlet, but less than the $3 trillion HEROES Act passed by the House.
Lower Income Eligibility Will Help Keep Cost Down
By reducing the income eligibility of a second stimulus check, McConnell can reduce the overall cost of the next relief bill. As part of the first round of CARES Act stimulus payments, the Treasury Department and Internal Revenue Service (IRS) sent out checks to more than 159 million Americans, totaling almost $267 billion. There are also an estimated 35 million payments that have not been issued yet, according to a report from the House Ways and Means Committee.
If an income limit of $40,000 for a second stimulus check was imposed, presumably for single filers, the number of eligible Americans would come down drastically. Kyle Pomerleau, an economist and resident fellow at the American Enterprise Institute, tweeted that using a $40,000 cut-off would result in approximately 80 million households being eligible for payments.
Two Factors That Could Increase Eligibility and Cost
Income Threshold For Married Couples Filing Jointly
Given that the first round of direct payment had higher income eligibility for married filers, it may be safe to assume that if a second payment is included in the next bill, it would follow suit. Pomerleau added that a very rough estimate shows the “IRS has an additional 12 million married couples filing jointly in the $40,000 – $75,000 income range.”
Phase Out For Partial Stimulus Check
Similarly, the first round of payments include an income phase-out. While individual filers earning less than $75,000 would receive a full $1,200 stimulus check, those making more than $75,000 but less than $99,000 were eligible for a partial check. If a similar clause is included for the next round of stimulus payments, that would augment the number of recipients too.
While the total number of eligible payments will vary depending on specific criteria, it will likely be significantly lower than the close to 200 million payments from the first round of stimulus. Perhaps this is the way of achieving consensus among Republicans, Democrats, and the White House?
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Shahar is the founder of Acing Your Finances (www.acingyourfinances.com), where he helps students and employees develop healthy financial habits. He co-founded a popular… Read More
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