2020 Poverty Rate Decline: Examining the Impact of Stimulus Aid

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Surprisingly, the U.S. poverty rate dipped in 2020. And that speaks to the success of stimulus aid.

When we think back to 2020, a few things come to mind -- a widespread health crisis (which, incidentally, isn't over yet), rampant unemployment, and a shaky economy. In spite of all that, poverty levels actually declined in 2020 compared to 2019. The reason? Stimulus aid.

Stimulus aid was a lifeline

Americans were entitled to several forms of aid in the course of 2020. For those collecting unemployment benefits, a $600 weekly boost available under the CARES Act lasted for months before being replaced by a $300 weekly boost. Those both came on top of state benefits and helped the jobless keep up with their expenses in the absence of earning a paycheck.

Two rounds of stimulus payments also hit Americans' bank accounts in 2020. The first, which the CARES Act provided, was worth up to $1,200. And the second, which went out at the very end of the year, was worth up to $600. There's since been a third stimulus check that was approved in March of 2021 with a value of up to $1,400.

Lawmakers who were opposed to stimulus aid argued that it was going into the hands of people who didn't need it. But poverty numbers tell a different story.

Last year, boosted unemployment alone kept 5.5 million Americans from falling into poverty, according to U.S. Census data. And all told, there were 8.5 million fewer people living below the poverty line in 2020 than there were in 2019. That's in spite of the fact that the U.S. economy lost an astounding 9.6 million jobs.

Will the poverty rate start to rise?

In early September, the $300 weekly boost for jobless workers came to an end, as did federal programs that allowed self-employed people to receive unemployment benefits. Now, millions of people risk plunging below the poverty line in the absence of adequate assistance.

Many lawmakers argued that boosted unemployment was leading to labor shortages by disincentivizing people to find work. But despite the fact that additional unemployment aid has been gone for a solid month, hiring levels haven't risen. That lends to the theory that other issues have been fueling labor shortages, like health concerns and a glaring lack of affordable childcare.

Right now, the U.S. is still battling a pandemic. And while the economy is in better shape than it was last year, it's still not back to normal.

Some Americans are receiving temporary aid in the form of the boosted Child Tax Credit. But the enhanced version of the credit has only been approved for the current tax year, and while lawmakers are fighting to extend it, they've hit obstacles. Plus, the expanded credit only helps households with children.

If more stimulus aid doesn't arrive, poverty rates could rise this year despite the economic progress we've seen so far. And frankly, that's not a great thing to have happen at all.

What's the solution? It could boil down to more targeted stimulus aid -- programs that involve sending extra money to households who need it rather than blasting out checks to the bulk of the U.S. public. It could also mean reinstating boosted unemployment while the pandemic is still raging.

There are several options lawmakers can look at. But if they don't do something, millions of Americans could soon see their financial situations take an ugly turn for the worse.

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