Inflation is not the biggest thing happening in the economy right now

WASHINGTON – Rising prices have shattered consumer sentiment and become a major political story as President Joe Biden struggles to implement the broad social policy agenda that helped him win the White House last year.

But inflation is actually just one of several major economic stories happening right now. There has also been a huge reduction in child poverty – and Congress could make it permanent.

The same fiscal policy, partly due to high inflation, resulted in a 40% reduction in child poverty in July, according to researchers at Columbia University’s Center on Poverty and Social Policy. The one-month drop was steeper than any year-on-year change in child poverty from 1967 to 2020, when Congress first sent out stimulus checks and boosted unemployment benefits in response to the coronavirus pandemic.

Since July, the reduction in family poverty has mostly been supported by monthly payments worth as much as $ 300 per year. child. The payments have lifted between 3 and 4 million children across the poverty line each month.

“The magnitude of that particular figure is not what we normally see on a regular basis, especially from a single policy,” Megan Curran, director of politics at Columbia’s Center on Poverty, said in an interview.

Democrats plan to continue payments until next year as part of the Build Back Better Law on Social Expenditure, which they hope to pass in the coming weeks. If the Democrats succeed in anchoring the policy, it will represent a dramatic shift for the American welfare state in favor of families.

One of the Democrats’ biggest obstacles is inflation, with news that prices have risen 6.2% since October last year, prompting new warnings from Republicans and even some Democrats that Build Back Better is a bad idea.

“From the grocery store to the gas station, Americans know that the inflation tax is real, and DC can no longer ignore the economic pain Americans feel every day,” Sen. Joe Manchin (DW.Va.), a central vote in the Senate, said in a tweet last week.

Higher prices weaken purchasing power for each paycheck, but for most families with children, the monthly tax deductions for children outweigh this erosion. In October, Moody’s Analytics estimated that for households earning the median income of about $ 70,000 a year, higher inflation costs them $ 175 a month. Child benefits are worth $ 300 for each child under 6 and $ 250 for children under 18; that money comes on top of wage increases that are already surpassing inflation for lower-income households.

In Washington, poverty reduction means pushing family incomes across an arbitrary limit equal to the number of people in the household. For the people actually affected, the extra money can be a lifesaver; low-income families report using child benefits mostly for necessities like food, clothes and shelter. Monthly survey data from the US Census have also found that households with children reported remarkable decreases in difficulty in obtaining food and covering basic expenses before and after child payments went out, changes that were absent in households without children. Research suggests that people who grow up poor tend to make less money, have poorer health outcomes, and are more likely to end up in trouble with the law.

In short, the new child tax deductions cut down on real human misery by partially compensating for the labor market’s indifference to parents, who have more expenses and less flexibility to work no matter what job may be available.

Late.  Sherrod Brown (D-Ohio) listens during a business meeting with the Senate Committee on Veterans Affairs on Capitol Hill on October 20 in Washington, DC
Late. Sherrod Brown (D-Ohio) listens during a business meeting with the Senate Committee on Veterans Affairs on Capitol Hill on October 20 in Washington, DC

Anna Moneymaker via Getty Images

Late. Sherrod Brown (D-Ohio) said the new policy does not come into its own in the national economic debate.

“We are not talking enough about it, and not to tell you what to do, but you are not covering it enough,” Brown said, referring to the press. “The discussion is, ‘The Democrats can not pass the next two bills’, instead the discussion is: ‘See what the child tax deduction has done’.”

Brown said that “90% of families in my state who have children under 18 have received at least $ 3,000 a year in tax breaks. And that has to be said over and over and over again.”

Ally Rykiel has received $ 550 per month since July for her two children aged 5 and 11. She had another baby in October, though she has not yet been able to update her family’s information with the IRS to get an additional $ 300 for the new baby.

Rykiel, 33, said her family has not paid much attention to inflation, partly because she and her husband do not drive, partly because they recently moved to Richland, Washington, to be with her family, and partly because they buy food in different places. grocery stores and are used to finding different prices on similar items.

Still, the cost of food has been a burden – especially after her husband took four weeks off work to help with the baby and received no pay from her employer. The child tax deduction has been useful.

“If we did not have it, we would not have had anything,” Rykiel said. “Expecting the $ 550 in the middle of the month has been huge. We just expect it now.”

The child support policy may not deliver to the full extent the Democrats said it would. It was intended that poverty should be reduced by 40% annually, but because the structured payments as an advance refund of the child tax deduction and because low-income households are not required to file federal tax returns, the Internal Revenue Service has not been able to reach millions of eligible households. As a result, the poverty reduction from the child tax deduction has varied between 25% and 29% every month since July, according to estimates from Columbia’s Center for Poverty and Social Policy.

The federal government determines the official poverty rate on an annual basis; the center produces its monthly poverty calculations by comparing household budgets with a poverty line that is one twelfth of the size of the annual. For a household with two parents and two children, the monthly poverty line is around $ 2,300 a month. If Democrats continue the benefits through next year as planned, the monthly poverty reduction could translate into a similar annual effect, at least according to the federal government’s supplementary poverty measure, which accounts for cash payments from the IRS.

A political problem with the child tax deduction is that because economists say inflation is caused in part by rising consumption, which conflicts with supply problems – with rising consumer demand, in part because Congress has given everyone more money – Republicans can turn it down the child tax deduction as just another thing that causes inflation, rather than something that mitigates its impact on most households.

“The economy has an inflationary problem – this is making it worse,” Senator Lindsey Graham (RS.C.) told HuffPost earlier this month, referring to the child tax deduction. “The more you expand the government, the more money you put into the system, the more inflation you will have. Now is not the time to make those policies.”

The cash payments increase aggregate demand, said economist Dean Baker, co-founder of the Center for Economic and Policy Research, but to such a small extent that it should not contribute much to inflation. Baker has argued that the inflation outbreak this year is likely to subside as companies solve supply chain problems and increased demand for durable goods declines.

“I see this as a story where people are actually doing pretty well with higher wages and many are getting CTC, but they hear about inflation in the media 24-7, so they think the economy is going to hell,” Baker said. in an email.

Many people believe that the economy is heading for hell, where consumer sentiment fell to its lowest level in a decade in November, according to University of Michigan consumer surveys. And people’s moods can have an impact on what happens to inflation, because if consumers expect higher prices and in turn demand higher wages, a self-reinforcing cycle can develop. Richard Curtin of the University of Michigan said his consumer research shows that people believe their own income gains will be wiped out if inflation continues.

“Nominal income gains were widely reported, but when asked about inflation-adjusted gains, half of all families expected reduced real incomes next year,” Curtin wrote. “Consumer reactions to rising inflation should come as no surprise as it has been reported over the last many months.”

Tara Golshan contributed reporting.

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