Erica York, Tax Foundation Economist joins the Yahoo Finance Live panel to discuss the latest on the $1.9T COVID relief bill.

Video Transcript

AKIKO FUJITA: Let's bring in Erica Yorks, who-- York, who is an economist at the Tax Foundation. Erica, you've been hearing Jess lay out all the specifics of this bill. Some of the key priorities for Democrats largely intact, although there were some concessions on the amount of the stimulus checks. They did get state aid as well. How are you looking at this from a larger economic point of view? How significant will this be if the House passes it in its current form and ultimately the president signs it?

ERICA YORK: I think it's telling that nearly half of all of the provisions included in the stimulus plan are some form of direct relief to individuals. So we have the stimulus checks. We have the expanded child tax credits.

And we have the enhanced unemployment benefits. That's about 45% of the relief in the bill going to households. And that's going to make a huge impact for the households that benefit from those provisions.

ZACK GUZMAN: What's interesting, too, is the debate that was around what threshold should be there. Obviously, the Senate version came down from where the income threshold phased out stimulus checks, $100,000 versus $75,000. When you look at that, though, a survey looking at what specifically younger Americans are looking to do with their stimulus checks, about 50% of 24 to 34-year-olds, according to Deutsche Bank's latest survey there, say that they're willing to put that stimulus check in some form into equities. And I guess that there's debate around whether or not that means that too much is going to people who might not need stimulus here. What's your take maybe on what you expect to see Americans spend on once this comes through again, based on what we saw last time stimulus was giving?

ERICA YORK: We estimated that the change from the House to the Senate version would mean that instead of about 93% of tax filers getting payments, 89% of tax filers would get payments. So these are still very, very broad in terms of the number of people who are going to get them. Generally, what we see is that lower-income households spend more of these checks while higher-income households save more of the checks.

And that's the debate. If these are stimulus checks, then we want them to be spent. If these are more of a form of relief to help people get through the pandemic, then if they're saved a little bit, they might be effective relief. And we also think if people are going to save them, they might spend them later.

One of the questions with the sighs of relief, $1.9 trillion on top of the trillions we've already had, is that this could potentially run the economy too hot. And so if we do have some people saving the stimulus checks instead of spending them, it might relieve some of that pressure of running the economy too hot.

AKIKO FUJITA: Erica, one of the things that's been overlooked in the headline numbers is the expansion of the child tax credit. We're talking about potentially checks of up to $300 per child for parents. There's been so much made about how women have disproportionately been affected by the pandemic. What specifically do you think this does in trying to bring women back into the workforce, those who have really been struggling to balance child care and work?

ERICA YORK: Yeah, we've seen in the numbers and in survey research that in these households that are affected by not having child care, it's typically women who stay out of the workforce to take care of the children instead of remaining in their jobs. The expansion of the child tax credit is really a fundamental shift in child tax policy in the United States. Before now to benefit from child-related provisions in the tax code, you had to work. So there was a phase in of the child tax credit, where the amount you got depended on how many hour-- or how much money you had in earned income.

The proposal now does away with that. There's no work requirement for receiving the child benefit. And so I think that in and of itself is a huge shift. It's going to mean that millions of people who didn't have access to the child tax credit before now have access to it.

And the proposal is going to send the checks out monthly. And so households won't have to wait until next year to file their taxes to receive this benefit. They'll begin receiving it in monthly installments.

ZACK GUZMAN: Yeah, how difficult does that become, then, for this change to come through at the IRS? I mean, we're talking about a pretty significant change coming through while a lot of Americans are preparing for filing season here. So how does that maybe change things right now as you look at it?

ERICA YORK: The IRS has a lot on its hands right now-- ongoing filing season, sending out a second or a third round of stimulus payments, and now handling monthly child allowance. So it's going to require a lot more resources for the IRS. There's also the complication of making the unemployment benefits tax free. That will require people who have already filed their taxes to file an amended return. And that is going to be even more paperwork on the IRS.

So it'll be really interesting to see how they perform under this pressure. What we've seen so far from the IRS with the last two rounds of relief payments has been remarkable speed and remarkable accuracy for the most part. So I anticipate that even though this is going to be really challenging, they'll be up to the task.

AKIKO FUJITA: And finally, Erica, there's a big question about the price tag in all of this, $1.9 trillion. You asked the question yourself. How much is enough? How much is too much?

How should we be looking at the debt picture in this? It feels like we're talking about $1.9 trillion. The president's already talked about a new package that could be coming on infrastructure. And yet that number on the deficit continues to go higher and higher.

ERICA YORK: We're seeing countries around the globe grapple with that exact question. Do we start paying for relief? How do we pay for relief? How do we handle tax increases when we're also trying to get the economy to recover and get businesses back online and people back in jobs?

Before the pandemic, the United States' debt was already on an unsustainable trajectory over the long term. This has exacerbated that. We're seeing record high deficits, $1.9 trillion on top of our already structural deficit of more than $1 trillion.

And so lawmakers are going to have to grapple with that question. Do we start paying for things? And how do we do so in a way that doesn't damage economic growth?

I think we've seen the Biden administration start talking about that, especially in the form of a corporate tax increase, which would really be misguided, as we want businesses to ramp up their investment. And a corporate tax increase could stave some of that off. And so this is something lawmakers will have to address, and hopefully do so in a way that doesn't harm the economic recovery.

ZACK GUZMAN: And Erica, just lastly, I mean, you mentioned the tax questions. It's something that we talked about in earlier segments on this show around those unemployment benefits and whether or not there would be a large tax bill that a lot of Americans didn't know about. But when you think about trying to help out those hardest hit in this pandemic, they've got a lot on their plate as is, navigating perhaps getting let go through all this. I mean, how much does that maybe add to the plate when you think about that amended filing you discussed? I mean, talk to me about the headaches not maybe not in the IRS, but also just the Americans now having to navigate that?

ERICA YORK: Yeah, the tax system is already difficult to navigate. I don't think anyone looks forward to the process of filing a tax return. And if you've never filed an amended return before, that's going to be a really big hurdle, and probably intimidating, too.

Lawmakers could specify that the IRS does this administratively and automatically look at AGI and adjust it for taxpayers who have already filed their tax returns and then automatically send out refund checks to taxpayers who would be affected. I think that would be the better way to go. There would still be some burden on the taxpayer to check and make sure the IRS did it the right way.

But I think that would be a lot easier on people who have obviously been hurt by the pandemic. They're receiving unemployment benefits. They're in a tough situation already. Filing an amended tax return on top of that just doesn't sound like a good idea.

AKIKO FUJITA: Erica York, an economist at the Tax Foundation, it's good to talk to you on this Monday. Thanks so much for stopping by.