Those federal COVID-19 checks: What they mean and who might get left out

Odds are, you’re probably wondering when the direct cash assistance passed by Congress last week as part of the CARES Act is going to hit your mailbox or bank account. Issuing direct cash payments was without a doubt the right move, but it won’t fill the yawning financial hole facing many families and it leaves some serious questions unanswered. Cash payments won’t meet families’ needs for long Direct cash payments are the single fastest way for government to support families in a time of crisis, whether that be a pandemic, illness, job loss or other unforeseen event. The CARES Act creates a $1,200 one-time payment for all U.S. residents or $2,400 for married couples, with an additional $500 per child dependent, which phase out for high income people.

That’s certainly nothing to sneeze at, but it won’t address the long-term economic fallout of the COVID-19 outbreak — particularly given that roughly 2 out of every 5 households in North Carolina can’t survive above the poverty line for three months without income, and many of those families are the low-income workers first to lose their jobs to the COVID-19 crisis.

Based on our most recent Living Income Standard report, the direct aid provided by the CARES Act will pay for the basic necessities for roughly two to four weeks. As can be seen here, families will burn through the aid faster in the more expensive urban parts of North Carolina, and it also depends on family size and how travel and child-care costs change during this time. Regardless of the details, many families will certainly use up the cash aid and need additional support before this crisis is over.

Direct payments to people in need are the best economic stimulus, but these checks won’t pull us out of the COVID-19 recession

Putting money in people’s pockets is the best way to stabilize a quaking economy. As we saw during the Great Recession, direct payments to individuals had a significantly larger economic return on investment than tax cuts. Thankfully, these cash payments are not the only provision of the CARES Act that puts money in the pockets of people and families. The package boosts the amount and duration of Unemployment Insurance payments for people who lose jobs or hours due to the outbreak. Particularly in states like North Carolina where existing UI benefits are grossly inadequate, the UI provisions will prove far more important than one-time checks for many families.

That said, we are confronted with a sobering reality. The CARES Act will not pull us out of a downturn that is getting worse by the day and will almost certainly end up being one of the most severe economic collapses in American history. More than 300,000 North Carolinians have filed for unemployment since March 16, the fastest spike in job losses on record, and that’s just the first wave of impacts, which is mostly concentrated in customer services.

The rebate aid is really about immediate financial survival, so leaders from the federal to the local level need to be setting up the economic stimulus we need to actually recover and avert a prolonged recession. Using the tax system to deliver relief is a huge problem

In a replay of how aid checks were dispensed during the Great Recession, the CARES Act reveals giant holes in how we get cash to people in desperate need. Without federal, state, and local policy action, many of the North Carolinians who need aid most urgently will be the last to get it or won’t get it at all.

A recent analysis by the Institute on Taxation and Economic Policy found North Carolinians in the bottom 40 percent of the income distribution will receive less than their proportional share of the cash payments.

Very low income people not required to file tax returns

The one-time payments for individuals and families is technically a tax rebate so many of the poorest North Carolinians are likely to miss out. The rebate is tied to tax filings in the past two years and, because people with incomes below the federal standard deduction are not required to file a tax return, many of the North Carolina’s least affluent people may be ineligible to receive the aid.

That means a lot of people with disabilities and very low-income workers may not receive assistance from the CARES Act.  Moreover, immigrant taxpayers who file with an ITIN or for whom no member of the household has a Social Security number are ineligible for the cash payment.  This provision alone excludes at least 300,000 adults and children across North Carolina.

All of these gaps in the system mean many families and communities who need stabilizing aid the most are not currently in line to receive it.

We saw this problem in 2008 when millions of people had to submit tax filings just to receive stimulus checks, causing delays, confusion, and some people to miss out. Experts believe the Administration can easily overcome this barrier, but that action has not happened yet. Under pressure from Congressional Democrats the Treasury Department did announce all Social Security recipients would get the checks, but that doesn’t address the full scope of the problem.

Because the Trump Administration has yet to use its authority to overcome these problems, state and local leaders need to step up and ensure as many North Carolinians receive these cash payments as fast as possible. In some instances, this may entail using existing infrastructure for delivering public benefits.

Homeless people and individuals without bank accounts

A lot of North Carolina’s most vulnerable people will take longer to get their aid, and many may never get it at all. Filers who provide bank account information in their 2019 filings will have the rebate directly deposited just like a normal refund and checks will be mailed to everyone else who is eligible.

First, this will mean North Carolina’s lowest income people who don’t have bank accounts will be the last to get their assistance, and many of them work in the service jobs already disappearing in the first phases of the outbreak. Next, it creates a huge problem for people with unstable housing or homeless North Carolinians.

If someone has moved since filing their tax returns or lacks stable housing altogether, the checks may never reach them, or at best will be even more delayed. State and local authorities need to immediately figure out how checks will actually make it to many of the people who need them in the most urgent way.

College students and their families

If a college student is claimed as a dependent, their parents will receive the $500 additional aid for a child. That both means college students whose parents cover at least half of their expenses will receive nothing directly, but also the whole family unit will lose out on the $700 difference between the child rebate and the full $1,200 adult rebate. Here again, relying on the tax status of individuals undermines our ability to put money in the pockets of people who need it.

Prevent scammers, cheats, and predatory lenders from having a field day

It’s a sad fact of life that whenever poor and economically vulnerable people have any money in their pockets, scammers, cheats and unscrupulous lenders try to steal it. Unless state and federal elected leaders and law enforcement step up fast, the COVID-19 checks won’t help all of the people who need it the most.

North Carolina has some of the best laws in the country against predatory lending and scams that target North Carolinians and consumers across the country who have already lost jobs, have little savings, and are struggling to survive. Similar to the Great Recession, state and federal policy makers and regulators may have to take quick and decisive regulatory and legislative steps to help ensure that predatory service providers and or lenders are not able to take advantage of people who are receiving federal aid checks.

Predatory lenders are not the only threat out there. For example, we’ve already seen scammers trying get peoples’ bank account information by posing as the IRS and even some companies trying to siphon off their employees’ COVID-19 aid (check out this fact sheet if you’re wondering about employees’ rights in these uncertain times).

Just as with predatory lending, rigorous enforcement along with potential state and federal legislative fixes will be required to prevent these kinds of abuses.

Patch the holes and then build a better boat

All of the problems with the cash aid in the CARES Act ultimately flow from the same source. We lack the tools to deliver cash payments to individuals who fall on hard times, a problem only thrown into greater relief by the COVID-19 outbreak. Instead of having a way to deliver adequate assistance to everyone who needs it, lawmakers had to hit the panic button and jury rig our tax system to execute a job it was never designed to do.

Federal, state and local leaders can solve some of these problems this time around by using other programs to deliver the payments, like existing anti-poverty programs, but that won’t ultimately fix the long-term issue. Lots of developed countries have figured out better ways to support citizens experiencing personal crisis, and that infrastructure becomes even more essential in times of national emergency.

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