1 1 (March 17, 2020)

handle is hein.crs/govciyu0001 and id is 1 raw text is: 

              Researh Sevice

COVID-19 and Stimulus Payments to

Individuals: Considerations on Using

Advanced Refundable Credits as Economic


March 17, 2020
In response to concerns about an economic slowdowi stemming from the COVID-- 19 pandemic,
policymakers have been considering a broad array of policy options. Some are targeted directly toward
the individuals and industries that may be most affected. Others would more broadly seek to stimulate the
economy. Among this latter category of policies, some have suggested a payroll tax cut, while others have
proposed direct cash parnents recovery rebate' -to virtually all households. One mechanism to
provide cash payments relatively quickly is to create a new refundable tax credit and then advance it to
households before they would otherwise claim it on their income tax returns. A similar policy was enacted
most recently in 2008. This Insight addresses some common questions about advanced refundable tax

What is a refundable tax credit?

Tax credits reduce income taxes owed dollar for dollar; each dollar in tax credit is a one-dollar subtraction
from income tax liability. Nonrefindable credits are limited by the taxpayer's income tax liability; while
refundable credits are not. Hence, taxpayers with little to no income tax liability-including many low-
income taxpayers-can benefit from refundable tax credits. Refundable tax credits targeted toward low--
income individuals and families are estimated to have relatively large stimulative effects compared to
other policies-a large bang for the buck-because low-income populations tend to spend these
amounts quickly. Some economists were concerned that the 2008 credit would not be effective because a
lump-sum payment might be saved rather than spent. Empirical evidence based on studying a prior rebate
found, however, that the rebate was largely spent.
Current refundable tax credits-the earned income tax credit (EITC) and the refundable portion of the
child credit-benefit low-income families that include workers and children. These tax credits are
received once a year when federal income tax returns are filed. Tax credit amounts are primarily based on

                                                             Congressional Research Service

Prepaed for Membei's and
Committees of Congress

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