Stimulus checks, benefits and other US economic stories in 2021
The US economy is still on the mend from the destruction wrought by the covid-19 pandemic. Here’s a look back at the economic news from 2021.
After experiencing an economic collapse not seen since the Great Depression, the US economy has been making record strides toward full recovery. At the end of 2020 that recovery seemed to be slowing down but two covid-relief packages supercharged the bounce back to health.
However, even though the economic recovery continues the virus remains with a new surge of infections as well as a new variant that is the most contagious yet. As the second year of the pandemic comes to a close, AS USA took a look back at the main news stories from 2021.
Stimulus checks in 2021
In the final days of 2020, Congress approved yet another round of covid-19 relief to bolster the US economy including a second round of stimulus checks. Much smaller than the first round sent at the beginning of the pandemic at $600, they were just half the original direct payments to eligible taxpayers. Still, those checks, which started going out in January 2021, gave a boost to household finances still struggling in the aftermath of economic crisis induced by the pandemic as well as putting wind in the sails of a faltering economic recovery.
However, those payments were seen as insufficient to meet the needs of the American public drawing calls from lawmakers to send additional stimulus checks, this time for $2,000. With both Senate seats on the line in Georgia in a run-off race the stage was set for both sides of the aisle to jump on the bandwagon to send more relief. Newly-elected President Biden promised that he would back the measure should Democrats win both races in the state which had flipped in 2020, voting for a Democratic presidential candidate for the first time since former President Jimmy Carter.
Democrats ended up sweeping both seats in incredibly tight races unseating both incumbent GOP candidates but lawmakers who wanted a full $2,000 stimulus check would be disappointed. Americans got a third stimulus check, but only for up to $1,400 as part of the American Rescue Plan Act that Democrats shoved through Congress without any support from their Republican colleagues.
Even before the sweeping $1.9 trillion bill was enacted calls for a fourth, and even recurring stimulus checks were being voiced by Democrats and the public. However, as lawmakers struggled to hammer out the details of the follow-up legislation to implement the White House’s vision for rebuilding the US economy talk of another stimulus check in Washington all but faded from the scene.
That didn’t stop states though from sending their residents additional economic help. Some, like California’s Golden State Stimulus, were able to send residents direct payments in the form of tax rebates due to far rosier finances during the pandemic than had been expected. Others were able to use funds from the covid-19 relief programs and stimulus funds for state and local governments to send select residents “Thank You” payments for their work during the health emergency.
The last of the federal and state stimulus funds will be reaching taxpayers by the end of the year as tax authorities finish processing 2020 tax returns. In the case of the federal direct payments, some taxpayers were sent a smaller stimulus check than they were eligible for because the IRS based the payment on their 2019 tax return. As the tax agency processed 2020 tax returns, it began sending out “plus-up” payments to taxpayers whose 2020 tax declaration made them eligible for a larger stimulus payment. The IRS has until 31 December to finish sending those funds directly to eligible taxpayers.
2021 saw US implement basic income payments for children
Stimulus checks weren’t the only direct payments that the IRS handed out in 2021. The American Rescue Plan brought to fruition a policy that had been championed by progressives in Congress, an enhanced Child Tax Credit with an advance payment scheme. The legislation increased the amount families could claim, made it fully refundable and took away the earnings floor which had previously denied the benefits of the tax break to lower-income families.
The first of six planned monthly instalments in 2021 hit bank accounts in July. The impacts of the payments were felt almost immediately with hardship among households with children decreasing. Additionally, the policy is credited with reducing childhood poverty in 2021 but there are fears it will increase again in 2022.
The changes to the tax credit were only for the 2021 fiscal year and Democrats have been pushing for a one-year extension as part of their latest sweeping social and climate policy bill, the Build Back Better Act. Those hopes now look to be in jeopardy with Senator Joe Manchin saying that he cannot vote for the bill. His vote is crucial in order to pass the legislation in the face of universal Republican opposition to Biden’s Build Back Better bill and the Senate split 50-50.
Enhanced pandemic unemployment compensation expired in 2021
One of the other major measures that kept workers’ and families’ heads above water were enhanced federal pandemic unemployment benefits. Congressional Democrats’ sprint to pass the American Rescue Plan was a result of December’s covid-19 relief legislation giving the jobless compensation a limited extension that was due to expire by mid-March.
After some horse trading the financial help for those who had been sidelined from their jobs due to the pandemic saw benefits extended once again but for less time and money than had originally been proposed. But on the other hand, jobless workers who had received compensation in 2020 got a $10,200 waiver on unemployment benefits claimed.
The legislation called for the programs providing jobless aid to workers to remain in place until 6 September. Despite efforts to get the programs extended even further, the economic recovery looked to be accelerating as more and more Americans went back to work. Blaming a labor shortage on the $300 weekly boost to regular state and other unemployment benefits governors and lawmakers in over half the states decided to end one or all of the federally enhanced compensation programs early. Those decisions were met by legal challenges in several states forcing and about face for a handful.
The theory was that people were staying out of the job market because the benefits were too generous. However, unemployment data in the following months actually saw a slower job growth in those states compared to states that kept the benefits. Many workers stayed home due to worries about their health and that of their family due to risk of covid-19 infection. Additionally, many parents were unable to re-enter the workforce due to childcare necessities at home.
Employment numbers continue to improve throughout 2021
Employment in the US is still below pre-pandemic levels, down by 3.9 million jobs, but the amount of job creation throughout 2021 has averaged 555,000 monthly according to Bureau of Labor Statistics data. The labor shortages have made 2021 a job-seekers market with wages increasing by 4.8 percent year-on-year in November. However, those gains were tempered by higher than normal inflation meaning real average hourly earnings decreased 1.9 percent by November 2021.
This year also saw workers taking back control. Many workers used the pandemic to upskill with the hopes of getting a better job leading to what was called “the Great Resignation.” Workers also took to the picket line in 2021 in unprecedented numbers in what was dubbed “Striketober.” They were demanding more from their employers after making sacrifices during the pandemic and to secure safer working conditions.
The Fed sees job growth continuing through 2022 and the unemployment rate is expected to drop to around 3.5 percent. Another sweeping bill passed by Congress this year, the $1.2 trillion bipartisan infrastructure bill, is expected to add 1.5 million jobs per year over the next decade. The massive spending bill is the largest of its kind in nearly 70 years includes a range of infrastructure investments.
Inflation has been unusually high in 2021
The disruptions caused by the pandemic to labor markets, production and supply chains on top of a desire by consumers to spend savings built up during the lockdowns, and to some extent the three stimulus checks, have all been pushing prices on everything through the roof. The Federal Reserve had been tolerating the high inflation rates feeling they would be temporary and seeing them as necessary to get the economy back to full employment.
The record inflation led to the Social Security Administration raising benefits by the largest amount in 40 years. The 2022 Cost-of-living adjustment (COLA) was 5.9 percent which will be reflected in an average increase of $92 per month to beneficiaries. However, like wage increases, much of those gains will be lost to continuing inflation as well as higher Medicare costs.
The central bank during the year has been called out for inflation that has exceeded its expectation. The Federal Reserve’s board met in December and came to the consensus that it was time to put the brakes on rising prices. The Fed will begin to wind down its stimulus program of buying securities as well as starting a series of rate hikes to bring the interest rate up from zero to 2.1 percent over the next couple years.