Tax cliff nears for U.S. families as pandemic benefits wear off
(Bloomberg) – For Americans worried about rising prices and shrinking household budgets, January could deal another blow to the bottom line.
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At the end of the month, the government’s temporary moratorium on federal student loan payments expires, meaning loans will again accrue interest and borrowers will have to resume monthly payments.
And unless Congress takes action on January 15, many American families will lose monthly government payments totaling hundreds of dollars, earned through a temporary extension of the Child Tax Credit under the Relief Act. in the event of President Joe Biden’s pandemic.
The impending cutoff of two major federal pandemic aid sources to American families threatens to add to Americans’ pessimism about the state of the economy, 10 months before they go to the polls to decide whether Biden’s party will retain control of Congress.
A Gallup poll released on December 2 found that 45% of U.S. households say inflation is causing them financial hardship, and a Wall Street Journal poll released Tuesday found that about 60% of Americans believe the economy is bad or bad and going the wrong way. direction.
An extension of the expanded child tax credit is included in Biden’s Build Back Better legislation, its climate, fiscal and social package. But the bill is blocked in the Senate. Prospects for an extension of the student loan moratorium are even weaker – there is little internal interest in the White House, according to two people familiar with the discussions on the issue.
Treasury Secretary Janet Yellen said in a hearing last week that the expanded child tax credit had put an estimated $ 77 billion in families’ pockets, helping 61 million children so far. Americans. Monthly payments can be as high as $ 300 per child or $ 3,600 per year.
Expiring payments is already a priority for some Congressional Democrats.
“Many families have found it invaluable in meeting educational needs, health care needs and some other things to enrich the lives of their children,” said Representative Lloyd Doggett, Democrat of Texas and senior member. of the Ways tax organization. and Committee on Means. “It is lifting families out of poverty, and we will have a real setback and a setback if this does not continue.”
Without the extension, the tax credit would drop to $ 2,000 per child, and Americans would have to wait until tax season to claim it on their returns.
Congress has up to “a few days before January 15” to act, Doggett said. Build Back Better legislation would extend the largest version of credit for most families by one year, guaranteeing payments until the midterm election. The extended credit would become permanent for families with little or no income.
Senator Ben Cardin, a Democrat from Maryland, said Congress could make the payments retroactive if it does not pass an extension in time, but not meeting the mid-January deadline would result in ” disturbances “.
“It is extremely important to keep this program on track,” Senator Ron Wyden, an Oregon Democrat who chairs the finance committee responsible for drafting taxes, told reporters.
If households lose monthly tax credit payments and start paying student loans again, it could mean the loss of several hundred dollars in disposable income for many families, as they face rising prices. due to inflation and the spread of the omicron variant of the coronavirus.
âThe pandemic could be with us for a while and hopefully not completely stifle economic activity, but affect our behavior in a way that contributes to inflation,â Yellen said last week during ‘a Reuters event.
Pressure is mounting on Biden to prevent federal student loan borrowers from having to resume payments on February 1, following the end of a moratorium that dates from the start of the pandemic in March 2020.
The administration last extended the moratorium in August, affecting around 41 million borrowers, but said at the time it would be the last such extension.
Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren and Representative Ayanna Pressley, all Democrats, on Wednesday called on Biden to suspend student loan payments until U.S. employment reaches pre-government levels. pandemic and forgive up to $ 50,000 in debt per borrower.
They cited an analysis they commissioned from the Roosevelt Institute, a nonprofit research group linked to the Franklin Roosevelt Presidential Library and Museum, which found that resuming student loan repayments would cost $ 85 billion a year. on the household budget of about 18 million borrowers.
The moratorium saved borrowers an average of $ 393 per month, Schumer said in a statement Monday in which he also cited the uncertainty surrounding the omicron variant and calling for an extension.
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“If we don’t extend the break on payments then this horrible interest will accumulate at a time when too many people are still not financially ready to shoulder a giant monthly bill,” he said. “Plus, with the spread of omicron, the uncertainty as to what will happen next requires at least one more extension of the student loan payment hiatus.”
He referred to a survey last month by the Student Debt Crisis Center, an advocacy organization, and Savi, a startup that helps borrowers lower their payments. The groups found that while most borrowers have full-time jobs, 89% say they are not financially secure enough to resume their payments. Forty-five percent said their current financial well-being was bad or very bad, up from 25% before the pandemic.
A White House official who was granted anonymity to discuss the matter said the administration wanted an orderly return to loan repayment and would help borrowers make the adjustment.
Biden has resisted proposals for the complete cancellation of student loans. Warren, one of the main champions of the idea, and three other Democratic senators last week sent a letter to four federal loan officers asking companies to describe the steps they are taking to put millions of borrowers back on track. payment once the moratorium ends on January 1. 31.
Half of borrower loans will be “transferred to a new loan manager, an unprecedented event with increased risk of harm to borrowers,” the senators wrote.
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