There’s a new stimulus bill waiting to be passed and Josh and Austin are here to walk you through it. They discuss who gets a stimulus check and all of the other factors that come with it, like unemployment, health insurance, child benefits, and much more. They end with giving advice on what to do with your stimulus check and the implications on the economy for this $1.9 Trillion package. Listen in now!
**After further reviewing the final bill, the $10,200 tax free unemployment is only for 2020…not 2021!**
Main Talking Points
[0:37] – Overview of the American Rescue Plan Act of 2021
[4:41] – Who Gets A Stimulus Check?
[8:42] – Unemployment
[11:00] – Health Insurance
[15:46] – Child Benefits
[21:05] – Earned Income Tax Credit
[22:57] – Rental Assistance
[23:46] – Loans, Vaccines, Schools, & Small Businesses
[26:56] – Multiemployer Pension Plan
[28:24] – Dad Joke of the Week
[28:55] – Federal Minimum Wage
[30:45] – What Should You Do With Your Stimulus Check?
[35:46] – Implications of New Stimulus Bill
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better, helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. And today we’re going to talk about some pretty relevant real-time news. We are recording this on the 8th of March and we have some pretty big news about the new stimulus bill.
[0:37] – Overview of the American Rescue Plan Act of 2021
Josh Robb:
That’s right. The American Rescue Plan Act of 2021, which, first off, let me say they’ve already failed us in that they don’t have a cool little thing like The Heroes Act.
Austin Wilson:
I know. Is it the… That’s the ARPA.
Josh Robb:
Man, you had all that time to think of a cool name and just didn’t do it.
Austin Wilson:
Fail.
Josh Robb:
So that did pass the House just over a week ago. And then the Senate took it up last week, and they had to go through their budget reconciliation process. That way they could just pass it with a 51 majority. In doing so, they had to throw some things out. They changed it. And whenever you change a bill, and it doesn’t match what the House passed, you’ve got to reconcile those two together. And so they passed there as the Senate did over the weekend. Goes back to the House. They’ve already taken it up. They’re expecting maybe Tuesday, or Wednesday the latest, to have a vote again on it. Once it’s voted on them, that goes to Biden’s desk, and he’s already pretty much indicated he’s signing it.
Austin Wilson:
At least at this point, it kind of seems like the house should have enough votes to pass it pretty much as is-
Josh Robb:
If it’s close. They had like, I want to say between seven and nine vote majority on this bill that they passed. Now, the worry is they took out the $15 minimum wage-
Austin Wilson:
And some infrastructure-
Josh Robb:
… which some of the Progressive’s really wanted. And so they’re hoping to be able to talk everybody into voting for this version and not going back through. Because if they change anything, it starts a whole process of bargain.
Austin Wilson:
Right. There was also some infrastructure plans that there was a train in Silicon Valley.
Josh Robb:
Underground train.
Austin Wilson:
Yeah. It was, in the first bill, passed the house. It’s now not. And there was also a bridge, I think from New York to… Not New York to California.
Josh Robb:
It’s a big bridge.
Austin Wilson:
That would be a big bridge. New York to Canada. Yes, you’re correct. That was also-
Josh Robb:
Think of the interstate system once they get there.
Austin Wilson:
Yeah, that’s I-70. But yeah, that was scrapped as well. So those are kind of the two major differences as well as some threshold differences, which we’re going to talk about. So right off the bat, back late last year when the next round of fiscal stimulus was being discussed, the fact that the government believes that direct payments to individuals is a good way to help people during this tough time as well as stimulate and reinvigorate the economy coming out of the COVID pandemic induced recession that were, I guess, technically still in. People on both sides of the aisle late year were on favor of not $1,200 like we got earlier in the year, but $2,000.
Josh Robb:
2,000. That was the number thrown in.
Austin Wilson:
But what was able to get passed really quickly was a slim down version of that bill. And that slimmed down version of the bill was $600 per person that was paid. It was approved and signed in December. It really got paid in January. But that was phase 1.5 of stimulus or whatever, with the anticipation that there would be more to come. And there was broad support on both sides of the aisle for that. So what do you do when you take the promised $2,000 minus the already given $600? You get?
Josh Robb:
$1.9 trillion.
Austin Wilson:
Actually pretty darn close, but $1,400, roughly, per person is actually the… This is the detail that most people are going to care about most about this bill. And what’s all likely to happen is that when the house approves the changes and Biden signs the bill, there is a law. So we have a law, and then at that point, it should be a relatively quick turnaround similar to what happened to December, because they’re using the same mechanisms they’ve already used twice. If you have your electronic deposit set up for your taxes, you’re going to get within a few weeks the-
Josh Robb:
Within days of it passing, they think they’ll start sending out the first payment.
Austin Wilson:
Yup. So obviously if you’re using mail, it’ll take a little bit longer and stuff like that. So anyway, $1,400 per person. Now that is different than we talked about last spring when it was $1,200 per adult and $600 for kids. Then it was $600 for everyone in December. This is $1,400 for everyone.
[4:41] – Who Gets the Stimulus?
Josh Robb:
Right. And so we’ll walk through some of these different things. And so the first is who gets it, that’s been the big question. So $1,400 per person, per individual. And so they set these thresholds, they said, okay, if you file your taxes… All this again is based off of your tax returns. And that’s the numbers and data they’re using. And they’re saying it’s off a 2019 tax return unless-
Austin Wilson:
You already filed your 2020.
Josh Robb:
… Your filed 2020, then we’re going to take 2020. Now in some of the prior bills, they said, they’ll look at either/or. Now this one is just whatever is your most recent. So if you filed 2020 taxes, that’s what they’re going to look at. If you have not filed yet, 2019.
Austin Wilson:
Yes.
Josh Robb:
If you’ve not filed it, I would probably look at the numbers and say, am I crossing these thresholds? And maybe wait to file until you get your tax return.
Austin Wilson:
Or vice versa. Suppose you made way less money in 2020 than you did in 2019, you may want to file your 2020 taxes now.
Josh Robb:
Yeah. Right away.
Austin Wilson:
Roughly now. This is going to come out on Thursday. We’re recording on Monday. So you might be too late at that. Who knows.
Josh Robb:
So that’s what they’re going to look at. So the thresholds they have, and these are a little bit different than in the past ones.
Austin Wilson:
Well, and they got reduced from the House bill to the Senate Bill.
Josh Robb:
Right. That’s one of the things they adjusted. So if you’re a single filer on your tax, so you file singly, $75,000 is the threshold to get the $1,400. Now, if you have above 75,000, they do allow a phase out from 75,000 to 80,000.
Austin Wilson:
Right.
Josh Robb:
Not a big gap there.
Austin Wilson:
It’s not a big window.
Josh Robb:
They’ve narrowed these down. At $80,000, you’re pretty much phased out.
Austin Wilson:
Yes. And that’s adjusted gross income.
Josh Robb:
AGI, adjusted gross income. So you have some of those deductions things taken off. So it’s not your income, but adjusted gross income. Head of household. So if you file as head of household and there’s certain stipulations when you qualify for that, they’ve increased that. That’s 112,500. So they’re giving you a break, assuming that there’s other dependents and there’s a reason why you’re not filing single there. That maxes out at 120. So you actually have a little bit wider range there for that. And then married filing jointly is just double the single. It’s $150,000. And then you phase out at 160,000. Again, it’s just double the single threshold.
Austin Wilson:
Exactly. And like we said that is kind of what a lot of people are going to be focusing on. This is money that they’re going to be seeing very soon, kind of like they already had before. And that will be coming soon. That’s going to key.
Josh Robb:
The whole point is this checks getting in so that people can help cover all those costs that they’re incurred and help stimulate the economy. Now, the big piece of that, and you mentioned, is this is for everyone. This is for people. Whereas in the first round, your kids had a different amount, a dependence. All dependents receive $1,400 as well.
Now there’s some certain things along with that. But one of the improvements, if you want to say that, or one of the things that probably got a lot of complaints the original stimulus was that college-age kids are usually still a dependent on their parents. They’re an adult from the age standpoint they’re over 18, but they’re still a dependent on their parents’ tax returns.
So as an adult who’s probably employed and realistically probably facing some of those issues with COVID, because the jobs that a lot of college students have are the ones that were impacted by COVID, they did not receive anything in the first stimulus. They were not considered a dependent from that standpoint because they were too old but yet they weren’t filing their own taxes so they were kind of in this middle ground. So for this one, they say, all dependents. If you claim as a dependent, you get that 14, as long as the person filing taxes-
Austin Wilson:
Not you. You don’t get it.
Josh Robb:
Right. As long as the person filing taxes meets those income thresholds, all dependent on that tax return qualify for $1,400.
Austin Wilson:
Correct.
Josh Robb:
Now, that $1,400 goes to the tax filer. Now they can do whatever… They can hand it to that college student or whatever. That also includes elderly. So if you have a parent who is your dependent based on care, and you filed them on your tax return as a dependent, they also qualify for $1,400.
Austin Wilson:
Exactly.
Josh Robb:
But all payments go to the tax filer.
[8:42] – Unemployment
Austin Wilson:
Next up. So that was the biggest chunk that a lot of people are going to care about is direct payments to individuals. There’s a lot of other provisions. And we’re going to give this a very high-level overview because we’re not going to spend 10 hours reading it line for line.
Josh Robb:
There’s a lot caveat in here. We’re hitting kind of the big ones that I think people will want to know about.
Austin Wilson:
So if you want to read more, it is all publicly available, but we’re not going to read all word for word. We’re going to hit you with some highlights here. So the next segment we’re going to talk about is unemployment, right? We’re about to hit at the extended unemployment benefit deadline expiring again.
Josh Robb:
Into March.
Austin Wilson:
That’s what was happening at the end of last year, which is why they needed to pass a bill real quick, and did. And then we’re running up against that again. And that’s why there’s a rush to get this bill passed right now. So that $300 unemployment extension of additional federal stimulus is going to be extended now.
Josh Robb:
Yep. And it was $400 for a little while. And then in there, all their reconciliation and all that.
Austin Wilson:
Well, it was $600 in the spring.
Josh Robb:
Yeah. But the bill itself had 400 for a while and then they negotiated through and agreed on $300 a week. And that’s been extended all the way through September. All right. And so September is kind of now this… For a lot of these things you’re going to hear is talk about September. That’s kind of this deadline for a lot of these things. So $300 a week in addition to your normal state unemployment that you’re receiving. So this is the federal employment. The other thing they put in here is they added the first $10,200, because nice even numbers-
Austin Wilson:
Nice round number, yeah.
Josh Robb:
… is tax-free if you earn less than 150,000, I believe that you’re married filing jointly number. But again, what they’re doing here is they’re looking at, for people who were impacted last year, a lot of them may not have realized, but unemployment benefits are taxable. And if you do not withhold taxes on your unemployment, when you file your taxes, you may be in for a surprise. And if you’re still on unemployment, you don’t have a lot of extra cash to pay that tax that’s owed. And so I think this is kind of there. And this is only for 2021 though. So it doesn’t help you for last year, but for this year, the first $10,200 is tax-free if you stay within this income limit
[11:00] – Health Insurance
Austin Wilson:
Next up, health insurance. So there’s been some changes to health insurance. One of the big provisions is COBRA insurance, which is continuation of benefits, something or other.
Josh Robb:
It’s a Consolidated Omnibus Budget Reconciliation Act.
Austin Wilson:
Okay. That’s great. I’m glad you put that out there so that we can all-
Josh Robb:
COBRA.
Austin Wilson:
COBRA. And what that really is that it was… It’s been around for a long time. COBRA has. And that is, A, if you leave an employer or, B, if you get let go of an employer, you had the option to continue to remain on your employer or prior employer’s healthcare plan, although your premium would be substantially, historically.
Josh Robb:
So the way the COBRA is set up is, for large corporations, I think there’s a certain employer cap for cover to apply minimum. But it says, if you separate from employment and you need to continue your healthcare benefits, you are allowed to stay in your company plan, but you have to pay, and it gets up to like 110%. And you’re like, what’s that 10%? Well, now that the company isn’t considering you a benefit to their firm, you have to pay those administrative costs, pretty much is what it is. And so you could pay up to 110% of your premium costs that they have for that plan.
Josh Robb:
Now, in this bill, COBRA, they didn’t touch COBRA, but what they’re doing is they’re setting money aside that will help cover the premium costs for certain people who qualify from April 1st through the end of September. So again, what they’re doing is saying, we know you can get health care, but you may not be able to afford that healthcare, so we’re going to help you with that. And so you have to qualify. So you have to have lost your job, not left voluntarily. So COBRA applies if you just walk away.
Austin Wilson:
Oh yeah. You have the option.
Josh Robb:
But this does not apply in that they’ll cover your premiums unless you got fired or lost your job because they closed or COVID related. So that’s a piece. There’s some other caveats there. So again, we’re not going to go to the little details of these things as there’s some other stuff along there. But high level, for some people, they could qualify for that COBRA premium, at least through the summer to be covered.
Austin Wilson:
And Josh, there was also a provision in the bill about some differentiation in the Affordable Care Act coverage premium amounts?
Josh Robb:
Yeah. So health insurance, if you go to the ACA, the Affordable Care Act, some people call it Obamacare, you go onto the exchange and you look for some states run their own exchange. There’s the government one as well. But you go on there and you shop for your health insurance. When you are on there, they have a gold, silver platinum, bronze. They have different levels. And even before this bill, they had the silver as kind of their baseline. That was kind of their middle one. And they had some certain rules. So if you earned a certain amount of income or you’re below a certain amount of income, you would get a tax credit which would help offset your premiums. It was a way of making it affordable, the Affordable Care Act, it made it affordable for healthcare.
If you were above an income limit, you could still shop on the Affordable Care Act, you would not get any reduction in your premiums. This new stimulus bill that they passed would just, from now through 2022, so they are giving you really a year and a half or over a year and a half, they would cap your healthcare premiums to 8.5% of your modified adjusted gross income. Which is, you take your district income and add back in a little bit of income, somethings you exclude like your tax-free interest and those types of things.
But anyway, your modified adjusted gross income used to be, you cap out. And you could have… There were some people that were paying 50% of their income to their premiums because they didn’t qualify, they made two bucks, but they were either in a high risk or they were elderly or something was causing them to pay these high premiums. Now they’re capping it for everybody, I think it’s up to maybe $400, but there’s pretty much capping it for everybody for the next two years, 8.5% of your modified adjusted gross income.
Austin Wilson:
That is substantially lower than it could have been.
Josh Robb:
Yeah. And for people below that, they’re helping extend those. So if you’re under a certain percent of the poverty or the median income line, they’ll actually give you more. So overall, shopping on the Affordable Care Act may find you a lot cheaper or even free premiums at least for the next year or so. And if you’re already on there, you can go, there’s still an open role that you can make adjustments to make sure you qualify in that.
Austin Wilson:
Did that enrollment time table get moved back?
Josh Robb:
They extended. So all the way through May 15th. You can-
Austin Wilson:
Gotcha. Because that is like in a month, and that’s-
Josh Robb:
Usually it’s the end of December, is when they allow you to do your shopping.
Austin Wilson:
Got you.
Josh Robb:
Now, qualifying events are again open
Austin Wilson:
Always okay.
Josh Robb:
If you lose your job, that’s a qualifying event to get new insurance.
[15:46] – Child Benefits
Austin Wilson:
So the next category you should be familiar with because you have a thousand kids.
Josh Robb:
I do have a lot of kids.
Austin Wilson:
But yes, you have five kids if you include Baxter.
Josh Robb:
Yep.
Austin Wilson:
Because I’m going to count him. So yes. Josh, kids, child benefits have changed going forward at least for 2021. So talk about that little bit?
Josh Robb:
Yep. So there’s a couple of different benefits out there for having kids-
Austin Wilson:
Because these are pretty big changes.
Josh Robb:
So the first one is the child care tax credit. So if you have daycare or some sort of cost for taking care of kids while you’re at work, they allow you to take a tax credit on that up to a certain amount. Now, they’ve extended that. So it’s $4,000 for one kid, or $8,000 for more than one kid. Now, how you actually get there is a fun calculation. You take 50% of all eligible expenses, and then they take that based on your income, and it’s a certain percentage that you’re allowed to claim. It’s a fun hole. Don’t even try to do it on your own. It’s a crazy calculation.
Austin Wilson:
And you can only claim that if your daycare provider is claiming and… Like if you’re using someone off the books you can’t show it. You have to have proof and all. And everyone has to be on top of the table. So if you’re using your friend as childcare, that’s not going to help you.
Josh Robb:
But for most people, what this is going to do is just allow them to take… Because again, it’s up to 50% of your income. So the people who get the most out of this credit are still paying the other half out of pocket without any kind of offset. So all this is doing increasing those dollar amounts higher so you get more of your costs covered. Even for one kid, $4,000 for a year is pretty cheap for daycare, right? So it’s not covering everything, but it’s allowing a larger chunk to be covered. The other thing for that, there was a very low income limit for that. It was like $15,000 to get the full benefit out of that. They bumped that to 125,000.
Austin Wilson:
So most people should get.
Josh Robb:
Again, what they’re saying is we understand a lot of things happen, more people probably had to find daycare because schools were closed that might continue on allowing a little bit more flexibility there. Only for 2021. Also, only in 2021, you can add $10,500 in what’s called a Dependent Flex Spending Account. I’m not huge familiar with that. It depends on where you’re at. But that’s something an employer has for you, that they put some money into or you opt your salary into. And it’s kind of like if you think of a health savings account that’s for healthcare expenses and you get tax deduction, blah, blah, blah. This is similar, but it’s for your dependent care.
It used to be 5,000. They more than doubled to 10,500. Great, if you use it. The problem with that is your employer has to opt to allow this. So if they don’t change their plan and it says in the rules 5,000, they don’t amend it or adopt it, you’re stuck at five. You can’t do it on your own. So it’s kind of a weird thing. Not a lot of employers offer this flex plan, but if it’s there, at least talk to your employer. It doesn’t cost them anything. There’s no penalty for them to do this. They just have to go through the effort of increasing it.
Austin Wilson:
So probably even a bigger deal, as it relates to children, is the child tax credit that is new and improved in 2021?
Josh Robb:
Yeah. And this is right now just for 2021, but there’s some talk that some of this may be continued onward. They’d have to do that in a separate bill, but for now, for 2021, for kids that are five years and under, they’re going to give you a tax credit of $3,600 per kid. For kids that are up to age 17, so from six to 17, you get $3,000, which is like tripling what it used to be.
Now, one of the things they’re trying to do is they want this benefit to help people throughout this time. Again, the whole point of this bill is to help with COVID. And so what good is a tax credit that comes in 2022, what good is that going to do? And so what they’re doing is, as soon as possible, they want the IRS or whoever’s sending it, I think it’s the IRS that’ll actually be distributing this, but they want them to send these checks as much as monthly or whatever’s feasible for this to be done.
So if we’re going to say realistically, let’s say it takes them a couple months to get this whole thing in order, let’s start July, let’s just say they have the second half of the year, they’re going to take half of that credit. So let’s say you have the $3,000 credit, and then they’re going to take half that so $1,500 for six months. That’s like $500 a month you’re going to get per kid as this credit is going to be given to you, but you won’t get anything at the end when you file your taxes, you’ve already taken that credit. But the benefit is 500 bucks a month for the last six months of the year to help you out.
Austin Wilson:
Yeah. It’s kind of a build on the idea of universal basic income. And with the incentive of doing it monthly or periodically is that parents have been proven to be more responsible with providing for the needs of their children, and if they’re seeing this every month, versus getting a tax credit at the end of the year, and then maybe they get a tax refund and just go spend it or whatever.
Josh Robb:
Right. And the other thing that I did my math wrong. So if it’s the second half of the year, $3,000, it’s actually $250, but either way.
Austin Wilson:
I wasn’t going to correct you.
Josh Robb:
That’s right. My math, my brain told me, it was all right.
Austin Wilson:
And those thresholds are the same as the direct stimulus check?
Josh Robb:
Yup. 75,000 single, 150 for married filing jointly. And then the head of household-
Austin Wilson:
Right in the middle.
Josh Robb:
… 125, but not a lot of people use that.
[21:05] – Earned Income Tax Credit
Austin Wilson:
Exactly. So moving on to the earned income tax credit, now for 2021 only.
Josh Robb:
Yes. So what is the earned income tax credit? It’s really to say, all right, I just mentioned all these things you get as having kids. Kids are expensive, they’re there to help offset a little bit. Kids cost a little more than $3,000 a year, I think, but in general. This earned income tax credit is really for childless people. If you’re not claiming those dependents and stuff, you can get, it’s $1,502. Because again, why not.
Austin Wilson:
That’s a real great number. Because 1500, they would think it was a typo. When they were putting 1500 in the bill, they’re like, “Oh, we’ll just leave it at 1,502.”
Josh Robb:
We got to make this balance. So that starts at age 19, which it used to be, I think, age 25. So they moved it back down again, trying to catch those people in that early post-college timeframe, post-high school, where they may have experienced unemployment because of COVID and they want to help them out. So they get some money. There is no act maximum age either. Because again, this is really this… It used to be a capped, I think at 65. And again, they’re saying at that point, you shouldn’t have to need this tax credit, but they just opened it up, unless you have investment income of $10,000. So again, they moved that number up. They gave it to you a cushion there. And they actually made that permanent, the dollar amount.
Austin Wilson:
That’s not just 2021.
Josh Robb:
And it’s an index to inflation going forward. So it gives you cushion. But if you earn $10,000 of investment income, not earned income, investment income, you cannot claim this income tax credit. Again, it’s there for the lower income to give them an extra cushion. Most of these new credits to our credits in that even if you have zero tax, you still receive this. So that’s where your refund comes in. You actually get this money, right? Unlike a deduction where you have to have an income to offset. Credits are more valuable from that standpoint.
[22:57] – Rental Assistance
Austin Wilson:
So something else changed for rental assistance. Kind of elaborate on that a little bit.
Josh Robb:
Yeah. There was already programs in place to help moratoriums in the rental claims and for kicking people out, all that stuff. They’ve expanded and pretty much refunded some of those. So if you qualified for rental assistance in the past, the criteria is pretty much the same. You can continue that on with help. So pretty much, it’s income less than 80% of the median income in your area, and one member of your household is at high risk of homelessness or unemployment or hardship, then you qualify for this rental assistance. So pretty much, they’re just saying, okay, if you’re not some ultra wealthy person compared to everybody around you, and you’re having some problems, there’ll be some assistance available.
[23:46] – Loans, Vaccines, Schools, and Small Businesses
Austin Wilson:
Right. Two more kind of buckets we’ll talk about, one is student loans debt.
Josh Robb:
Yep. So there’s been talk about $10,000 of federal loan forgiveness going through the reconciliation process. That wasn’t an option, at least at this point, and it’s not something they put in the bill, but what they did do, and this is important, I think it’s setting up for the opportunity down the road, is they said there’ll be no income tax on forgiven debt all the way from now through 2025. Which is four years and a president term is four years. So I’m thinking they’re just kind of giving this ability that if President Biden wants to push a forgiveness through, which he talked about in his campaign, is that that would allow for anybody that gets that to not owe tax on the backend.
Austin Wilson:
Right.
Josh Robb:
What would happen now, before this passed, was if someone forgave your debt, you would then show that as income and owed tax on that forgiven debt. And they’re just trying to not give somebody a hardship. Because again, for a lot of people the example they would give is, if you’re, let’s say a teacher or someone who has student loan debt but don’t have an high salary to get that debt forgiveness, huge relief on your burden. But if you have to turn around and pay the tax on that, which you don’t have a lot of cash flow to do that, it could end up hurting you and making it harder for you. So that’s what they put in there through 2025.
Austin Wilson:
And that’s one of the provisions and there are multiple provisions in this bill that are not necessarily COVID related. Some of these are kind of an all-you-can-eat buffet of just throwing things in that could get passed. And that’s one of them. So kind of going on to that theme, there’s the other bucket we’re going to call it here. There is actual COVID. This is COVID provision here. So there is actual money set aside for vaccine distribution and testing. There’s about $350 billion for state and local governments. And that’s been hotly debated as well between both sides of the aisle, whether that’s really necessary or not. Because some states actually did better in 2020 than they did in 2019, but then there are a lot of states that obviously had really bad financial forgiveness.
Josh Robb:
Like Hawaii. Hawaii is dependent on tourism.
Austin Wilson:
Tourism. And they had non.
Josh Robb:
They closed themselves off to protect from COVID. That really hurts. So you’re right. There’s kind of a debate there, a gray area between need and other issues. But in general, they carved that out. Schools? Another one?
Austin Wilson:
Yeah, $130 billion for schools. And that is, it’s for COVID, they say, but actually only a small portion of that is going to get paid in 2021. And then actually extends for like seven or eight years of where the bulk of that payment goes out. So if you want to know more details of how that’s getting spent going forward, look into the bill, it seems like there could be more than COVID stuff in there for school improvements or school teacher salary. Who knows what’s in there. Small businesses obviously get extended aid through all of this. Hopefully some more small business loans and things to help them kind of coming out.
Josh Robb:
So there’s the PPP loan. They’re refilling funding up a lot of those so that if another round of any small business needs some additional funds, there is already a mechanism in place for that. You’re right.
[26:56] – Multiemployer Pension Plan
Austin Wilson:
And the last line item is going to be up your alley, Josh. What is a multiemployer pension plan? Is it a map.
Josh Robb:
Yes, it is a map, actually.
Austin Wilson:
That’s a real thing, right?
Josh Robb:
Yep. The idea there is what they allowed a couple of years ago is for multiple employers to group together and create a retirement plan together. And so pooling it together gives them a little bit more ability to spread that cost around and all that. Now, what if someone within your pension goes bankrupt and is unable to fulfill their obligations? As a group, you’re still obligated to fulfill those pension needs. And when you have a pension, you have a guaranteed income side of things.
And so the worry was that these group pension plans, let’s say there’s three companies that go together, if one of those three companies go out, now you have two needing to provide the revenue and income and payments into this plan to continue to have the lifetime payments for all the participants, it could become a burden on them. And so they’re funding and pushing some money into these plans to help cushion them and safeguard them.
And because the one that left, obviously they probably are bankrupt or something happened with the company, but then the ones that are stuck, also, you could put a financial burden on them and caused them to change it. So there’s some debate on that as well, because pensions and those types of things can become kind of hot topic buttons. But in general, that was the whole purpose, was multi-type employers. Something happened within the plan to make the burden lot stressful on the remaining employers.
[28:24] – Dad Joke of the Week
Austin Wilson:
So we know this bill discussion might be a burden on your brain?
Josh Robb:
Yes.
Austin Wilson:
And Josh, because of that, I’m going to take some of that burden away.
Josh Robb:
Please do it.
Austin Wilson:
I’m going to give you a dad joke of the week.
Josh Robb:
I’m ready.
Austin Wilson:
This is a good one. Josh, what is the loudest pet there is?
Josh Robb:
The loudest pet. I know the quietest pet, but not loud-
Austin Wilson:
What’s the quietest pet?
Josh Robb:
A pony, because it’s a little horse. But what’s the loudest one? You tell him the loudest.
Austin Wilson:
The loudest there is a trumpet.
Josh Robb:
Trumpet. I love it.
[28:55] – Federal Minimum Wage
Austin Wilson:
Okay. So let’s get a little bit more practical with kind of… So we we’ve talked about the bill, who gets check, what’s in the bill, all of those high level items. Good to know, right?
Josh Robb:
Yeah. Hopefully everyone’s still awake.
Austin Wilson:
Yeah. Hopefully you’re still awake because this is a little bit longer of an episode here, but it’s good, we need to get this out to everyone in a timely manner here. So we had mentioned it before but there are a couple of provisions that were in the house version of the bill that did not pass in the Senate version of bill. So those are, change to the federal minimum wage that was, the federal minimum wage is like $7.25.
The proposal was to make that 15. Which has had really heat from both sides of the aisle, because, A, it’s not indexed to cost of living where you’re at, and B, it’s a huge jump. So that’s had opposition on both sides. And one of the reasons was pulled out of the bill was the Democrats needed all 50 Democrats Plus the breaker, Vice President Harris, to vote for it to appease the moderate Democrats who thought that would be too much. So you needed all of them. So you had to pull that out. Take it all your-
Josh Robb:
And they had it pull out because they’re going through the reconciliation process, which means the rule is it has to directly affect the budget. And so that does not affect the budget directly. And so they ruled, the Senate actually ruled to have this person charged. She said, “Hey, you know what? This does not fit the rules of the process you’re going through. If you want to go the other way, where you need a majority, you can go.” But they knew they wouldn’t have that. So they had to stay within this frame. And so they had to pull out this minimum wage for that reason. They also arguably could have pushed it through one of their amendments, but they also were tough on the votes on that piece.
[30:45] – What Should You Do With Your Stimulus?
Austin Wilson:
Yeah. And a couple multiple infrastructure projects, like we talked about that Silicon Valley rail project in the New York to Canada, not California, bridge. So that’s what’s not in the bill, but here is the question everyone is wondering, what should or could, maybe we’ll go with should, what should you do with your stimulus checks? So suppose everything passes and in a few weeks, you’ve got a chunk of change sitting in your checking account because you signed up for your electronic funds transfer for your taxes.
Well, there’s two groups that this impacts. Number one, there’s the people who are out of work and down on their luck and have not really had a good go at it during COVID. That’s one group. There’s another group who have been able to work through from home or work whatever normal hours, they may be money ahead through COVID because they’re not traveling and they’re not spending, whatever, they’re still making decent money, but they still get the check because those checks are blanket. It’s based on income, it’s not based on anything else.
So those are the two different groups. So obviously, if you need the money to pay your dang bills, go pay your bills, pay your rent, pay for food, keep your family warm, pay all that. So please do that. That’s like phase one. But if you’re in the other group where you don’t necessarily need this for your day-to-day living, some options that you may use this money for is paying off some high-interest debt. Maybe you’ve got some credit card debt. Maybe you’ve got car loan, whatever that may be, pay off. So your personal loan, pay those off. Because that’s only going to help you. Number two, you could fund your emergency fund, if you didn’t already. You just shove it in your savings account no look at it.
Josh Robb:
Yep. Now, speaking of that we saw last year, overall, if you look at the U.S economy, we saw a record savings. So people last year, like you mentioned, one was they didn’t have a lot of options to spend, couldn’t travel and those things were kind of limited, but people saved. They kind of realize what happens when things changed instead of, I’d like to have a little cushion there. So we saw a record high savings, which is great from a long-term viability of our economy is to say people added a cushion to their lifestyle and their expenses.
Austin Wilson:
And actually… So that as reported monthly, and you could see that in the months where stimulus checks came in, so that would have been what? May, April, May, and December or January or whatever, huge spikes in the savings rate. And what that does is that’s not necessarily stimulus in the current moment. That is delayed stimulus. So the more money the government spends… This is just basic economics. The more money the government spends, they’re going to get less bang for their buck out of that, because the more money people have, the less they need to spend.
So what you’re going to do is if you’re putting the money in the stock market, or you’re sitting on it in a bank account or whatever, you’re still going to spend that money, but you’re just spending it later. So you’re delaying that. So yeah, these stimulus bills are going to stimulate the economy, but to a lesser degree than the first one did, or whatever, because of where we’re at with the overall country finances there. Another alternative there is that you could put it in investment accounts. And we’ve talked a couple of weeks ago about what kind of accounts you can put that in, and kind of the increments that you can do that in 2021.
Josh Robb:
Funding a Roth IRA is great.
Austin Wilson:
That’s a great use of your money.
Josh Robb:
It’s a great way to use that money if you don’t have anything to spend it on.
Austin Wilson:
But if you did want to spend more, it’s okay if you’ve all those things checked of.
Josh Robb:
The stimulus piece is there. And I’ve talked to some people that just even feel, I don’t need this money, it’s extra, I’m going to stimulate the economy because that gives the best benefit for everybody. You could give it away too, but in a sense, that’s what you’re doing. When you’re spending is you’re continuing putting in the money back into the economy. So housing projects, great improvements. I mean, if you’re going to be stuck in your house again, why not make it a little bit more fun to stay there?
Austin Wilson:
I saw Lowe’s stock was up like 4% on the news if the stimulus bill pass again.
Josh Robb:
Hoping for it. And that’s… We sell a big increase in costs of those [crosstalk 00:34:44] and all that stuff was crazy. Book a trip as things start opening back up. I’m anticipating that travel for the next couple of years is going to be pretty, pretty heavy in that people just postponed and are going to look forward to that freedom and flexibility. And then if you just want to buy something nice, for me, that’s great. For you Austin.
Austin Wilson:
I’m going to get you a donut?
Josh Robb:
It’d be great.
Austin Wilson:
That’d be great. Usually it’ll stimulate the local economy, local donut shop.
Josh Robb:
But in general, we always encourage you, like Austin said, is first look at your own finances, work in as best benefit you. Do I have debt that I need to pay down? Is my emergency fund where it needed to be? And then at that point it becomes, do I want to invest this money? Where am I at with my goals? And then also, do I want to put some of this back into the economy and stimulate it?
Austin Wilson:
Absolutely.
Josh Robb:
Maybe it’s a combination of some of those.
Austin Wilson:
Probably is. There are always a use, but give that money a name when it comes in, right?
Josh Robb:
Yeah. If you just sit around, it’ll find its own way out and it’ll disappear.
[35:46] – Implications of New Stimulus Bill
Austin Wilson:
Yes, there are uses for that money. Let’s take a little bit higher level view. Let’s talk about the implications of another $2 trillion stimulus bill here. So as we look at the macro economy and the country as a whole. Obviously, based on our current political landscape, there’s a lot of butting of heads going on. Margins are slim in both the house and the Senate, especially the Senate, obviously, being 50/50. And it seems like the there’s going to be a little bit more continued party division because the Democrats seemed to… They just wanted to push it through. They just pushed through, because they could and they had to quickly, but there was a little bit less bipartisanship than perhaps the Republicans would have wanted there. So one thing the bill didn’t do was aid in bringing down that wall.
Josh Robb:
And I think both sides were reluctant to do anything this time, or it seemed to me, is there wasn’t a Republican looking to crossover and add to this side, and there wasn’t Democrats looking to compromise and move. It looks like neither party really wanted to have a group effort on this.
Austin Wilson:
Absolutely. Another implication is that there is no way to deny that we are taking out another $2 trillion in-
Josh Robb:
1.9.
Austin Wilson:
Yeah, 1.9, sorry, I’m rounding, in national debt. Now, the caveat is that we’re taking out debt at the lowest interest rates we probably ever have. It’s in a relatively affordable way to do that, but $2 trillion is 10% of GDP.
Josh Robb:
I mean the last time I borrowed two trillion, it was at a higher interest rate and it was rough.
Austin Wilson:
They said it was risky
Josh Robb:
I was kind of jealous that I can’t borrow my two trillion at this.
Austin Wilson:
So the thing about national debt is there’s going to come a day to pay the piper eventually, right?
Josh Robb:
Yes.
Austin Wilson:
Obviously, every year we’re printing more debt and we’re issuing more debt because we’re running a deficit, and we’re keeping up and doing a good job of paying the interest that we owe on that, but eventually you have to pay the debt.
Josh Robb:
Yeah.
Austin Wilson:
That’s just something to keep in the back of our mind. We’re borrowing now to stimulate our economy and grow now, but we have to know that it is going to slow it down in the future. You can’t have free lunch both times. You only get one free lunch. So, that’s kind of one thing to think about there.
Another thing that Josh kind of hit on is the huge increase of savings and personal income in 2021. That’s good, that is a good thing, however there are some caveats that come with that as well. And number two, coming with that, is there’s probably, with everyone making more money, having more money on hand, you’re going to continue to see inflation.
So inflation is already creeping up a little bit, but there is anticipation that as the economy reopens with the fed holding rates at zero, and people having a lot more money in their pockets, things are going to pick up in terms of what they cost substantially over the next year or so. So that is something to watch because it certainly could impact you.
Josh Robb:
Yeah. From an economic standpoint, when you take inflation, in our debt, though, from a government standpoint, inflation is a good thing, because inflation is growth of our economy. Growth of our economy means higher tax revenue, higher tax revenue means easier payment on that debt that’s owed.
Austin Wilson:
You could inflate your debt away.
Josh Robb:
Yes, but you don’t want to have 10% inflation because you may inflate your data way, but you’re going to knock everybody else down and struggle through, and your tax revenue is not going to grow like that. So there’s that fine balance between growing the economy, having some form of inflation, and not too much where it’s going to hurt the overall economic development like sit down the road.
Austin Wilson:
And that’s why the fed has a mandate. And they’ve said they want to see core inflation plus or minus 2%. And they’re going to let it run a little hot for a little while, but they’re not going to let it run too hot for too long before they start putting on the brakes a little bit. And right now, it’s like open season for the fed right now.
Josh Robb:
They’re doing everything.
Austin Wilson:
They’re buying bonds like crazy. Their interest rates are zero. It’s just like Christmas all the time. And that Christmas will end. But anyway, a couple of positives that are going to come out of this is we are surely going to see, provided we don’t go into a full shutdown again, substantial economic growth in 2021 compared to 2020.
Josh Robb:
Right.
Austin Wilson:
You’ve bought it, obviously the health side of things, with the vaccine rolling out going well, COVID cases and deaths going down very sharply. That is helping. So that’s going to open up the economy, but on top of an opening up economy, you’re throwing in $2 trillion of money. It’s going to definitely grow the economy.
Josh Robb:
There’s no arguing that this money will not stimulate the economy. It’s just, was this amount needed? And is this the timing work. But when you throw money to the economy, it stimulates. That’s just an economic fact. Now, jobs.
Austin Wilson:
Oh yeah.
Josh Robb:
Now there’s some provisions in here for unemployment. The debate is how much is too much where you de-incentivize people from looking for work. But as states are starting to open back up, which we’ve seen a handful of states already announce they’re going to be fully opened, whether that’s too soon or not, there’s debate out there for that as well. But as that happens, we’re going to see more and more job opportunities. And hopefully, you’ll see more and more people go back into the workforce when it’s safe and when it’s effective for them to do that. And that’d be the hope.
Austin Wilson:
Yeah. With the economy, growing people, going spending money, that’s going to naturally bring people back to the workforce. Now, like you said, there’s that fine balance of providing the people who need the help and incentivizing people to go back to work. Because you’re going to get more economic growth even if everyone went to back to work too. So it’s like you just have to work all different angles. And the government has a very tough job with balancing, that I understand.
So that’s kind of the overall macro economic implications of that, but I think in general, economists around the world have said we need some form of fiscal stimulus for awhile. We got it. Whether it’s too much or too little or the wrong time, that’s not our job, we’re just giving you the facts of what’s in it. But I think it’s going to substantially change the outlook of the country and the economy for the short term anyway.
Josh Robb:
Mm-hmm (affirmative).
Austin Wilson:
As always, check out our free gift to you, a brief list of 8 Timeless Principles of Investing. These are overarching investment themes meant to keep you on track to meet your long-term goals. We don’t specifically count on stimulus checks as part of our long-term financial plan, but, hey, it might not hurt in 2021. So check it out. It’s free on our website. Josh, how can people help us grow this podcast?
Josh Robb:
Yup. Make sure that you are subscribed. That way you get our Thursday releases every week. Leave us a review on Apple Podcasts. Also, if you have any ideas or questions about the stimulus bill, shoot us an email at hello@theinvesteddads.com. And then if you know somebody who’s asking about this most recent stimulus bill, share this episode with them.
Austin Wilson:
All right. Well, until next Thursday, have a great week.
Josh Robb:
All right. Talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to the investeddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson worked for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only, and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions and the securities discussed in this podcast.
There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
