Democratic senators are worried about high-earning households receiving stimulus checks if the next pandemic relief bill has the same eligibility rules as before.
During the presidential campaign, Joe Biden vowed to deliver $2,000 checks if elected. In December, Congress approved a round of $600 payments. To make up the difference, Biden has made $1,400 checks the cornerstone of his $1.9 trillion coronavirus relief package
But because the checks are more valuable, and because the full amount would go both to tax filers and their dependents, Democrats are squirming over the prospect of much higher earners receiving the payments this time.
“If a certain family has a number of kids, it could spill over. Some small amount of money could go to families making $390,000,” Sen. Bernie Sanders (I-Vt.), who caucuses with Democrats, told HuffPost.
Democrats are now weighing their options for avoiding that outcome.
Previously, the payments went to all individuals earning $75,000 or less (and all joint filers earning $150,000 or less). The payments gradually shrank by $5 for every $100 of income above those levels, ultimately disappearing for a childless worker who earned more than $103,000 in their most recent tax year.
One option Democrats have considered to cut off higher earners would be to lower the phaseout threshold to $50,000 for individuals and $100,000 for married couples.
“Lowering the income threshold in some way doesn’t break my heart. Lowering the dollar amount I think would be a bad idea,” Sen. Brian Schatz (D-Hawaii) told HuffPost. “If it can be done in a way that pushes money out quickly to the people who need it the most, I’m all for it.”
Schatz said reducing the cost of another round of stimulus checks would free up funds for additional relief measures like housing aid and food assistance.
But even if Congress set the phaseout threshold at $40,000, a small percentage of households with incomes around $390,000 would still get partial payments, according to an analysis by the conservative Tax Foundation. That’s because the 5% phaseout rate doesn’t whittle down payments fast enough to exclude high-income households with lots of children, since the baseline is for each household member to get $1,400.
In the first round of checks, adults got $1,200 for themselves and $500 per child. The second round was $600 for each person.
Another option would be to set a lower threshold and also a higher phaseout rate, so that the size of the checks diminishes more quickly for higher earners. A third solution could be to simply cap the number of dependents who can receive checks, or to reduce the size of the checks for dependents.
Sanders said he doesn’t believe the threshold itself is going to be set at a lower level.
Democrats this week started the special budget process that will allow them to pass a broader relief bill with a simple majority and no Republican supporters. On Thursday, a group of nine centrist Democrats co-sponsored a budget amendment that calls on Congress to take measures “to ensure upper-income taxpayers are not eligible” for checks.
Sen. Richard Blumenthal (D-Conn.) said the number of people affected by the move would be “substantially unchanged” and that he would support it if it is backed by economists.
With the original threshold, roughly 167 million households would receive payments, according to Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. If the phaseout started at $50,000, checks would go to 157 million households, nearly 10 million fewer. The reduction would save $50 billion, roughly 11% of the total cost of the checks.
If all Democrats want to do is make sure higher earners don’t get checks, “It’s a sensible approach,” Gleckman added.
Fully 94% of households would get payments under the original Biden proposal, according to the Tax Foundation. Even with a $40,000 phaseout threshold, 87% would still get payments.
Not every Senate Democrat supports setting a lower income threshold for the next round of stimulus checks, particularly senators from more affluent states where people would stand to lose money.
Sen. Cory Booker (D-N.J.) said he likes the previous threshold of $75,000 for individuals receiving direct payments because of its overall stimulative effect on the economy.
“This isn’t just about those in need,” he said.
Sen. Elizabeth Warren (D-Mass.) called Biden’s $1.9 trillion relief package “already targeted.”
“We need to get that out the door,” she said. “Right now I just want to see us push this thing on through.”