Why do you need to make less than $75,000 to receive the full COVID-19 stimulus check?

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Reader Tucker Whitesides of Wilmington, North Carolina, asked:

With all this discussion of the Federal Stimulus controls, I’m having a hard time figuring out where the earning limits came from. It appears that most state aid limits revolve around multiples of the federal poverty guidelines, although these payments appear to be unrelated to these amounts.

For the first two sets of COVID-19 stimulus checks, $75,000 and $150,000 were the magic numbers.

If you earned more as an individual or as a couple, your direct payment decreased.

It’s a barrier that many Democrats still argue for a possible third payment round, although Biden and Senate Democrats now support these controls phase out earlier for those who earn above that amount.

In the early days of the pandemic, The Hill reported that GOP senators modeled the stimulus controls on the direct payments distributed to people during the Great Recession.

In 2008, the George W. Bush administration granted tax credits that have been phased out for individuals earning over $75,000 and couples earning over $150,000.

And how did the Bush administration get to those limits? There is almost 30 years of history behind these numbers.

The History Behind $75,000

The $75,000 income level emerged as a measure of aid payments during discussions about child tax credits in the 1990s, according to Mark Prater, who served as chief tax advisor for the Republican staff of the Senate Finance Committee from 1993 to 2018, and as its deputy staff director from 2007 to 2018.

In 1994, Republicans spearheaded a legislative agenda known as Contract with America that would include: a $500 tax credit per child for families. a tax credit is a reduction in the taxes you owe, as opposed to a deduction, which is a reduction in your income tax.

As with the debates over the incentive checks, there was disagreement about which income groups should get them. While many House Republicans wanted it to those who make less than $200,000, nearly half claimed the limit was too high.

Meanwhile, President Bill Clinton proposed it would go to families earning less than $60,000, and phase out for those earning up to $75,000. At the time, the Clinton administration had said that 61% of US households earned less than $75,000.

Breaking with the House and Somewhat Picking Up on Clinton’s Proposal, Senate Republicans ended over their own measure with phase-out that would start at $75,000 for single parents and $110,000 for couples.

“At the time, that was thought to be the line where upper-middle-income people were,” said Prater, who is now chief executive of the Tax Policy Services group at PriceWaterhouseCoopers. “They clearly didn’t want to do it for high-income people, at least in the Senate. And they wanted to target middle-income and lower-income families.”

A 1995 New York Times article too is noted “The lower limits were intended to refute Democrats’ accusations that Republicans’ tax plans favored the wealthy.”

Although Clinton eventually veto the bill, he would later pass the Taxpayer Relief Act of 1997, which included child tax credits that were phased out for single parents with annual incomes over $75,000 and couples earning more than $110,000.

According to the Economic Policy Institute, these credits “broad partisan support.”

How Phase Outs Are Determined

The 2008 incentive payments were based on these requirements and also reflected other measures, such as the Economic Growth and Tax Reconciliation Act of 2001, which including actual direct payments.

In 2008, the $75,000 threshold for individuals stayed the same, but for couples it rose to $150,000 from that initial benchmark of $110,000.

Prater thinks this was a gesture toward some of the tax penalties married couples face — a recognition, by policymakers, to ensure a couple is treated like two single people.

According to the tax law, married couples making comparable amounts? can end up paying more than if they were two singles.

“Marriage penalty is always one of those things that’s a tough design problem,” Prater noted. “And it’s one of those things where… [Congress] members, frankly, are just calling about how they want to go about it.”

For the COVID-19 phase-out rate, those checks were reduced by $5 for every additional $100 in income you earned above the threshold. The cutoff was lower in the second round because the amount was lower. When the first check was $1,200, you were not eligible for any amount if you were an individual earning more than $99,000, and you were not eligible for any portion of the second $600 check if you made more than $87,000. earned.

With these tax credits 5% phasing out has become standard. Under the 1997 Taxpayer Act, the phasing out reduced credit by $50 for every $1,000 you have made above the threshold.

Prater and Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, explained that this is to avoid so-called “cliffs.”

“You don’t want to be in a situation where if you make $75,000 a year, you get $1,400, and if you make $75,001, you get nothing,” Gleckman said. “If I was in that situation and I realized that if I made an extra dollar, I would lose $1,400, I would reduce my hours at work.”

Gleckman said the point is to phase out payments in such a way that it doesn’t change people’s behavior.

However, Biden and Senate Democrats now support a plan that would deviate from this formula for the next round of checks to appease moderate members of the party. (Democratic Senator Joe Manchin recently pushed for the threshold to become) even lower at $50,000.) The full payment would still go to individuals making less than $75,000, but they would end for those who make more than $80,000. Couples making more than $160,000 are also excluded.

Compare direct checks with other federal programs

By comparison, as reader Tucker Whitesides noted, many government aid programs are based on federal poverty guidelines. For example, to qualify for the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp Program), your monthly household income must generally be at or below 130% of the federal poverty line.

“The government doesn’t really have one consistent formula for delivering aid,” Gleckman said. “Even in tax law, there are different levels of subsidy for the child tax than for the income tax.”

He added that in crises such as the pandemic, there is no perfect equation for figuring out how checks should be distributed. Hence the constant disagreement. The numbers that politicians choose usually reflect who they think is falling in the middle class: A vague term that can be interpreted based on factors such as where you live or the size of your family.

“This is not the same as saying you really need to get two doses of the Pfizer vaccine because we’ve done scientific experiments,” Gleckman said. “With this you make a case of gross justice. You kind of gamble on who needs this the most – relative to how much the government is willing to spend.”

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