The American Recovery and Reinvestment Act: Helping Middle-Class Families

Abstract

[Excerpt] The ARRA helps struggling families in a variety of ways. First, by creating and saving jobs — 3.5 million by the end of next year, according to estimates by the Council of Economic Advisers — the ARRA gives a crucial boost to family incomes, which we quantify below. Second, the ARRA creates and expands a number of provisions that raise family income, directly and indirectly. Tax cuts and programs targeted both at middle- and lower-income families give a direct boost to after-tax income. Expansions to safety net programs, like the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), help lower-income, vulnerable families deal with hardships. And expansions to unemployment insurance and healthcare programs in the ARRA help families across the income spectrum who are suffering from the loss of jobs, health coverage, and income. In this staff report to the Middle Class Taskforce, we examine the impact of these various parts of the ARRA on the incomes of different types of families at different parts in the income scale. Some of our key findings are: • Jobs created by the ARRA are predicted to lower the unemployment rate by almost two percentage points. We expect this change to increase average middle-class incomes by over $1,300, or 2.3• Depending on family type and circumstances, the tax benefits from the ARRA provisions can add$2,000 or more to after-tax family income. • Combining job and tax effects, the ARRA will lift incomes by around $3,000 for many middle-class families, significantly offsetting their income losses over the recession. • For middle-class families hit with spells of unemployment, tax credits and safety net expansion in the ARRA, combined with existing unemployment insurance programs, can replace much of the income loss that occurs when a wage-earner in the family loses his or her job. Our staff report begins with a historical look at middle-class incomes, focusing on the income/productivity split that has become so pronounced and problematic in recent years. Next, we discuss the boost to family incomes provided by reduced unemployment, and we provide an estimate of this effect for different types of families. Finally, we look at other ways the ARRA lifts incomes, through the tax and safety net systems