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Reading Tucker Whitesides from Wilmington, North Carolina, asked:
With all this discussion around Federal Stimulus checks, I have trouble determining where the earnings limits came from. Most state aid limits appear to be multiple of the federal poverty guidelines, although these payments do not appear to be related 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 than that as an individual or part of a couple, your direct payment decreased.
That is a threshold that many Democrats still support a possible third payment roundalthough Biden and Senate Democrats now support these controls phasing out faster for those who earn above that amount.
In the early days of the pandemic, The Hill reported that GOP senators modeled the stimulus control of the direct payments that were distributed to people during the Great Recession.
Back in 2008, George W. Bush granted the administration tax rebates being phased out for individuals earning more than $ 75,000 and couples earning more than $ 150,000.
As for how the Bush administration landed on those borders? There is a nearly 30-year history behind these numbers.
The story behind $ 75,000
The $ 75,000 income level emerged as a benchmark for relief during discussions on child tax deductions in the 1990s, according to Mark Prater, who served as chief tax adviser to Republican staff on the Senate Finance Committee from 1993 to 2018 and as its deputy chief of staff from 2007 to 2018.
In 1994, the Republicans spearheaded a legislative agenda known as the Contract of America, which, among other things, a tax deduction of $ 500 per. child for families. A tax deduction is a reduction in the taxes you owe, as opposed to a deduction, which is a reduction in your taxable income.
Like the stimulus check debates, there was conflict over which income groups should receive them. Although many House Republicans wanted it to go those earning less than $ 200,000, almost half argued that the limit was too high.
Meanwhile, President Bill Clinton proposed that it go to families earning less than $ 60,000 and phase out those earning up to $ 75,000. Then the Clinton administration said 61% of U.S. households earned less than $ 75,000.
To break with Parliament and to some extent notice Clinton’s proposal, Senate Republicans ended up passing their own measure of phasing out that would start at $ 75,000 for single parents and $ 110,000 for couples.
“At the time, it was thought to be the limit of where upper-middle-class people were,” said Prater, who is now CEO of PriceWaterhouseCoopers’ Tax Policy Services group. “Clearly, they did not want to do that for, at least in the Senate, high-income people. And they wanted to target middle-income and low-income families.”
Also an article from the New York Times from 1995 noticed it “The lower ceilings were intended to help refute Democrats ‘accusations that Republicans’ tax plans favored the affluent.”
Although Clinton in the end vetoed the bill, he would later approve the Taxpayer Relief Act of 1997, which included child tax deductions that phased out for single parents with an annual income of over $ 75,000 and couples earning over $ 110,000.
According to the Economic Policy Institute, these had credits “broad party political support.”
How phasing out is determined
The stimulus payments from 2008 were built on these requirements and also reflected other measures such as the 2001 Economic Growth and Tax Reconciliation Act, which included actual direct payments.
In 2008, the $ 75,000 threshold for individuals remained the same, but for couples it jumped to $ 150,000 from the original $ 110,000 benchmark.
Prater believes this was a gesture to some of the tax sanctions that married couples receive – a recognition from politicians to ensure that a couple were treated as two single people.
Under tax law, married couples who make similar amounts may end up having to pay more than they would if they were two individuals.
“Marital punishment is always one of those things that is a tough design issue,” Prater noted. “And that’s one of the things where [Congress] members, frankly, just call on how they want to resolve it. “
For the COVID-19 phasing-out rate, these checks were reduced by $ 5 for every additional $ 100 in income you had above the threshold. Cutoff was lower in the second round because the amount was lower. Since the first check was $ 1,200, you were not eligible for any amount if you were someone who earned more than $ 99,000, and you were not eligible for any portion of the second $ 600 check if you were earning more than $ 87,000.
A phasing out of 5% has become standard with these tax deductions. Under the Taxpayers Act of 1997, the phasing out was reduced the credit by $ 50 for every $ 1,000 you made over the threshold.
Prater and Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, explained that this is to avoid what is known as “rocks.”
“You do not want to be in a situation where if you earn $ 75,000 a year, you get $ 1,400, and if you earn $ 75,001, you get nothing,” Gleckman said. “If I was in that situation and I realized that if I earned an extra dollar, I would lose $ 1,400, what I would do is that I would reduce my hours at work.”
Gleckman said the point is to phase out payments in such a way that it does not change people’s behavior.
However, Biden and Senate Democrats are now backing a plan that will deviate from this formula for the next round of controls to appease moderate members of the party. Democratic Senator Joe Manchin recently pushed for the threshold to be even lower at $ 50,000.) The full payment would still go to people earning less than $ 75,000, but they would end for those earning over $ 80,000. Couples earning over $ 160,000 will also be excluded.
Comparison of direct control with other federal programs
By comparison, as reader Tucker Whitesides pointed out, many government assistance programs are based on federal guidelines for poverty. 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 does not really have a single consistent formula for providing assistance,” Gleckman said. “Even in the tax law, there are different subsidy levels for the child deduction than there are for the employment income tax deduction.”
He added that in crises like the pandemic, there is no perfect equation for figuring out how to distribute checks. Hence the constant disagreement. The numbers politicians choose tend to 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 should get two doses of the Pfizer vaccine because we’ve done scientific experiments,” Gleckman said. “With this, it’s a matter of gross justice you do. You’re kind of guessing who needs this the most – in terms of how much the government wants to spend.”