Are Stimulus Checks An Effective Solution for Reducing Income Inequality?

To substantiate and sustain real progress, both employers and the federal government must prioritize the wellbeing of low-income workers, and work to reduce the widening income gap in America

The COVID-19 pandemic has heavily battered and torn down the US economy, with low-income families disproportionately impacted. Millions of Americans continue to work full-time jobs, juggling work with child care and providing their families with health insurance, weekly groceries, doctor appointments, and so much more. In these increasingly difficult times, it is essential that immediate action is taken to address the widening income inequality gap in America.

In terms of policy, there are two main ways the federal government can choose to address income inequality. They can redistribute a larger portion of money from the top to people at the bottom of the income ladder through taxation, or monetary policy tools therefore driving unemployment very low and in turn driving up demand and wages for remaining workers. Following his recent inauguration, it has become evident that President Joe Biden is working to utilize both strategies. On January 14th, Biden laid out a $1.9 trillion fiscal plan to aid low-income Americans, and if passed, this stimulus may have the potential to drive down unemployment far faster than after any other recent recession. President Biden is proposing an expansion to the child tax credit so to fully cover costs for low-income families. He also plans to extend weekly unemployment insurance benefits. A number of other moves are also planned out, including an increase in food stamps throughout the summer, a raise in the maximum earned-income tax credit for childless adults, and greater expansions. These steps are projected to reduce the overall poverty rate by 3.6%, or more than 11 million people, and will consequently have a major impact on child poverty rates as well.

In early December, 2020, federal lawmakers hastily worked towards finalizing a $900 billion COVID-19 relief package. This would include a second round of stimulus checks, additional unemployment benefits, and food and rent relief for many Americans. However, one crucial economic challenge has yet to be adequately addressed. The income inequality that has been compounded by the pandemic, the brunt of which has been thrust upon low-income working Americans with few existing support structures, will not be addressed with the December plan. In December 2020, when surveyed, a majority of working parents with an income below $50,000 reported that balancing work and family was one of their most difficult tasks, and that they found themselves spending more money and time on childcare and education than they did before COVID-19. 68% of parents in the US with children under 18 agreed that the pandemic placed more pressure and challenges on their ability to balance work and attend to familial responsibility. President Biden is planning to implement his stimulus package plan in addition to further advancing the stimulus package introduced in December. How might these problems be addressed?

Seeing as income is the most influential factor, COVID-19 was thought to be an equalizer at work initially. This was due to everyone from all positions at work having to figure out how to focus on their job while coordinating their children’s lives. However, the reality is that not all workers have the same resources to dedicate the time and money to make the experience easier for their children. In times like these, income defines the ability to provide for children, thereby leaving many low-income families helpless. Only 1 in 6 households with an income under $50,000 were able to perform jobs remotely, and households earning greater than $100,000 per year were 4 times more likely to have such an option, further demonstrating how income shapes a family’s hardships. 

Child-care issues are significant for all parents in these times, even those who can ‘telecommute’, but for the 42 million Americans who don’t have the option to telecommute, this challenge can be much greater. Child-care has been a fragile economic sector throughout the pandemic due to high labor costs and low margins, and many care centers are being closed permanently, creating an increase in long-term problems for low-income households. The COVID-19 relief and stimulus package discussed in December plans to include $10 billion in funding for the child-care industry, providing critical funding that states desperately need to directly support these services for struggling families. Still, this is far from enough.

In recent months, private enterprises have also begun to show increasing attention to these issues. Employers are seeing their employees suffer, and many of these businesses and corporations wish to ensure security and stability for their workers to ensure sufficient productivity and maintain their bottom lines. 

On the bright side, the pandemic could have a long-term positive effect in making the government and private enterprises more understanding and aware of the importance of child-care funding as an economic and labor market issue. The issue has been getting much more attention from employers now than before the pandemic with companies realizing the difficulty of rehiring workers amid current familial challenges. As a result of these new realizations and the push to offer more support to workers, companies may become more willing to provide more flexible work policies and paid leave benefits to lower-income workers. This shift in employer perspectives continues to be a consequential achievement as the pandemic rages on, but as seen with government support, there is still a lot of ground to be covered.

Both the federal government and many employers are working to reduce the prevalence of many of the mentioned issues through stimulus checks, financial aid plans, and working benefits, and progress is being made, albeit slower than optimal. However, there is still a long way to go. Studies have concluded that it will take two times the poverty level income to meet basic family needs such as child care, food, housing and health insurance, and the definition of a living wage will vary depending on where an individual lives. The poverty level depending on income and amount of family members in the household determines eligibility for child care help and classifies a household or family as impoverished. Therefore, it will take two times the amount of help (or money) that is given to an impoverished family of 4 to meet basic family needs. This means that roughly $52,000 will have to be provided to support a family of four at bare minimum- potentially even more, depending on the location. Before the pandemic, 38% of children lived in low-income families, the majority of them Black or Latino, and conditions have only worsened as a result of COVID-19. The burdens of these most-impacted households have yet to be adequately addressed.

Government and employer efforts have the potential to reduce many challenges for working parents in this pandemic, including childcare, healthcare, and debilitating stress, but there is still a long way to go. To substantiate and sustain real progress, both employers and the federal government must prioritize the wellbeing of low-income workers, and work to reduce the widening income gap in America.

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