Shoppers are seen wearing masks while shopping at a Walmart store in Bradford, Pa. On July 20, 2020.
Brendan McDermid | Reuters
Grocery stores, wholesalers and even auto mechanics could grow their sales in the coming months thanks to a new source of cash: monthly payments that go straight to parents ‘and caregivers’ bank accounts.
From Thursday families will receive money for each of their children. The expanded child tax breaks passed under the American Rescue Plan are designed to combat child poverty. However, they could also be an incentive for retailers to spend on groceries, school supplies, clothing, or even a car payment.
“It’s a good thing for Walmart and grocery stores,” said Jim Sullivan, an economics professor at the University of Notre Dame who studies the impact of the coronavirus pandemic on Americans living in poverty. “The retail sectors where middle- and low-income families spend money are likely to benefit.”
The payments will be the latest government funded injection of cash. Retailers, including Walmart and Best Buy, said they saw spending spike after consumers received stimulus checks. Some customers have also received extra cash from federal unemployment benefits, which many states recently ended. Congress has no plans for a fourth stimulus check.
“This will fill a void as some of the other payments will no longer be distributed,” said Michael Lasser, retail analyst at UBS. “It will continue to support consumer spending.”
More money, prepayments
Child tax credits date back to the late 1990s, but the law makes some notable changes that could impact consumer spending: families get more money per child. Low-income families receive payments even if they have little or no taxable income. And the government pays half the money up front instead of including it in a family’s tax refund.
The tax credit increases from $ 2,000 per child to $ 3,000 for children 6-17 years old and $ 3,600 for each child under 6 years of age. Families receive full payment when they bring up to $ 150,000 for a couple or $ 112,500 for a family with a single parent called the householder; or $ 75,000 as a single taxpayer. Above this amount, payments will gradually be discontinued – but those who receive less money will also receive advance payments.
For families receiving the full amount, this means a monthly payment of either $ 250 or $ 300 per child.
About 39 million households – including nearly 90% of children in the US – will begin making payments in July, according to the Internal Revenue Service. Payments run through December.
Some lawmakers are already pushing for the loan to be extended or made permanent.
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A tool to fight poverty
Francine Lipman, a law professor at the University of Nevada at Las Vegas who specializes in tax policy and poverty reduction initiatives, said the payments would go to two different types of consumers. Families living at or below the poverty line are likely to spend the money on basic necessities, such as buying groceries, paying rent, or paying for medicines.
“That $ 300 or $ 250 – and, of course, multiplied by how many children in the household – can reduce a slippery descent into poverty,” she said.
The payments can be used differently by families, who can generally afford what they need, she said. Middle- and higher-income families can spend extra money on voluntary things like summer camps, a laptop, or new clothes to go back to school.
The money will be felt especially by families who are close to the poverty line, said Sullivan of Notre Dame. For example, a family with two children, including one under the age of 6, would receive a total of $ 6,600 in total credit – and that would equate to monthly payments of $ 550, with the remainder being credited on their 2021 tax return. Overall, for a family of four living on the poverty line of $ 26,500, that’s about a 25% increase in monthly income.
These families tend to spend the money right away as they have a long list of needs – from putting food on the table to fixing a refrigerator to paying rent to a landlord, he said.
“It will in all likelihood go into spending rather than savings,” he said.
Lipman said the money could indirectly benefit a child. For example, she said, a parent can buy clothes that will give him or her confidence to apply for a job. An aunt or grandma may have money to pay for a car repair so they can drive to an interview or get a child to school on time. And a little extra cash can make parents less stressed and less likely to abuse alcohol or drugs.
She said she was also curious whether the nature of the payments – which are paid in smaller monthly amounts and upfront – might encourage financially secure families to spend the money instead of putting it in savings.
An incentive to spend
JPMorgan analyst Christopher Horvers named Walmart, Target, Costco, BJ’s Wholesale Club and auto parts dealers as the biggest beneficiaries of the child tax break. Horvers expects value-oriented retailers like dollar stores to generate more sales as well.
However, he said in a research note that the total amount of cash will be less than other government benefits. According to the Joint Committee on Taxation, Americans are getting $ 110 billion through the child tax credit, of which $ 55 billion is paid in monthly installments. The smallest of the three rounds of stimulus checks – paid out in January – was $ 600 and was $ 130 billion, according to JPMorgan Research.
UBS’s Lasser said he also expects the effect to be “more modest” than the stimulus. He said he was watching other factors that could change the pattern of spending, like the fall back to offices, which could dampen food purchases for home, or the spread of the Delta variant of Covid-19, which could increase them .
John Garratt, Dollar General’s chief financial officer, said on a conference call on its first quarter results in late May that the discounter was not including child tax credits in the company’s guidance for the remainder of the year. He called it “a wild card,” with an impact difficult to measure as some other government benefits wane.
Christina Hennington, Chief Growth Officer of Target, said on a conference call on the first quarter results that the additional funds could be used for back-to-school sales – a shopping season that retailers are already predicting will be stronger than usual. as parents and children are looking for a fresh start and new clothes, notebooks and laptops for a more typical return to the classroom.
Many states are hoping to see students back in their classrooms full-time when the new school year kicks off later this year. On Friday, the Centers for Disease Control and Prevention said fully vaccinated teachers and students are not required to wear masks indoors. More than 55% of the US population have received at least one dose of a Covid vaccine, according to the CDC.
In a statement, Target said incentives, including the child tax credit, “could act as a short-term tailwind for our business,” and said it included this in its positive outlook.
