Child tax credit payments could boost retail sales as early as this month

Shoppers wear masks while shopping at a Walmart store in Bradford, Pa. On July 20, 2020.

Brendan McDermid | Reuters

Grocery stores, big box stores and even auto mechanics could resume sales in the coming months, thanks to a new source of cash: monthly payments that go directly to parents ‘and caregivers’ bank accounts.

Starting Thursday, families will receive money for each of their children. Enhanced Child Tax Credits, adopted as part of the US bailout, are aimed at tackling child poverty. For retailers, however, they could also act as a stimulus that encourages spending on food, school supplies, clothing – or even a payment for a car.

“It’s a good thing for Walmart and the grocery stores,” said Jim Sullivan, professor of economics at the University of Notre Dame who studies the impact of the pandemic on Americans living in poverty. “Retail sectors where middle and lower income families spend money are likely to benefit in part.”

The payments will be the last injection of funds funded by the government. Retailers, including Walmart and Best Buy, said they saw an increase in spending after consumers received stimulus checks. Some clients have also received additional money from federal unemployment benefits, which many states have recently ended. Congress has no plans for a fourth stimulus check.

“This will fill a void because some of the other payments will no longer be distributed,” said Michael Lasser, retail analyst for UBS. “This will continue to support consumer spending.”

More money, upfront payments

Child tax credits date back to the late 1990s, but the law makes some notable changes that could influence consumer spending: Families will get more money per child. Low-income families will receive the payments even if they have little or no taxable income. And the government will pay half the money up front rather than including it in a family’s tax refund.

The tax credit will drop from $ 2,000 per child to $ 3,000 for ages 6 to 17 and $ 3,600 for each child under 6. Families will receive the full amount if they earn up to $ 150,000 for a couple or $ 112,500 for a family with a single parent, called the head of the household; or $ 75,000 as an individual taxpayer. Payments will be phased out above this amount, but even those who receive less money will receive advance payments.

Among families who receive the full amount, this will result in a monthly payment of $ 250 or $ 300 per child.

According to the Internal Revenue Service, about 39 million households – which include almost 90% of children in the United States – will begin receiving payments in July. Payments will run through December.

Some lawmakers, including President Joe Biden, are already pushing to extend credit or make it permanent.

A tool in the fight against poverty

Francine Lipman, a law professor at the University of Nevada in Las Vegas, who specializes in tax policy and anti-poverty initiatives, said the payments will go to two different types of consumers. Families living at or below the poverty line are likely to spend the money on necessities, such as buying food, paying rent, or paying for medicine.

“That $ 300 or $ 250 – and of course, that’s multiplied by the number of children in the household – that can reduce a slippery slope to poverty,” she said.

The payments can be used differently by families who can generally afford what they need, she said. Middle- and upper-income families can invest extra money in discretionary items, like summer camp, a laptop, or new back-to-school clothes.

The money will be particularly felt by families who are near the poverty line, said Sullivan of Notre Dame. For example, a family with two children, one under the age of six, would get a total credit of $ 6,600 – and that would translate into payments of $ 550 each month. Overall, this represents an increase of about 25% in the monthly income of a family of four living below the poverty line of $ 26,500.

These families tend to spend the money immediately because they have a long list of needs – from food on the table to repairing a refrigerator or paying rent to a landlord, he said. .

“It will go into spending rather than savings, in all likelihood,” he said.

Lipman said the money could indirectly benefit a child. For example, she said, a parent can buy clothes that give them confidence when applying for a job. A grandmother or aunt may have money for a car repair, so they can get to a job interview or get a child to school on time. And a little extra money can make parents less stressful and lower their risk of substance abuse.

She said she was also curious as to whether the nature of the payments – made in small monthly amounts and paid up front – might cause financially secure families to spend the money rather than put it in savings.

An incentive for spending

JPMorgan analyst Christopher Horvers called Walmart, Target, Costco, BJ’s Wholesale Club and auto parts retailers among the top recipients of the child tax credit. Horvers expects value-oriented retailers, such as dollar stores, to see more sales as well.

However, he said in a research note that the total amount in cash will be lower than other government benefits. Americans will receive $ 110 billion through the child tax credit, according to the Joint Committee on Taxation, including $ 55 billion in monthly installments. The smallest of three rounds of stimulus checks – paid in January – was $ 600 and totaled $ 130 billion, according to research by JP Morgan.

UBS’s Lasser said he expects the effect to be “more modest” than the stimulus as well. He said he was monitoring other factors that could change spending patterns, such as returning to offices in the fall, which could dampen food purchases for the home, or the spread of the delta variant of Covid. -19, which could increase it.

Dollar General CFO John Garratt said in a first-quarter earnings call in late May that the discounter had not included child tax credits in the company’s forecast for the remainder of the year. He called it a “wild card,” with an impact that’s hard to measure, especially as some other government benefits wane.

Target’s growth director Christina Hennington said on a first-quarter earnings call that the extra funds could be spent on back-to-school sales – a shopping season that experts say will already be longer. stronger than usual as parents and kids search for a fresh start and new clothes, notebooks and notebooks for a more typical comeback to the classroom.

Many states hope to welcome students back to full-time classrooms when the new school year begins later this year. The Centers for Disease Control and Prevention said on Friday that fully vaccinated teachers and students did not need to wear masks indoors. More than 55% of the U.S. population has received at least one dose of a Covid vaccine, according to the CDC.

In a statement, Target said the stimulus measures, including the child tax credit, “could serve as short-term favorable winds for our business” and said they have factored this into its positive outlook. .

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