Child Tax Credit Expected To Be A Retail Boon

Economists and executives are forecasting that child tax credits will be extremely beneficial to retail companies.

As part of the American Rescue Plan, families began receiving monthly child tax credits in July.

“Here’s the great news: you won’t have to wait until your next year’s tax return to get that break,” President Biden said in May. “I’m announcing today that on July 15th and on the 15th of every month thereafter throughout the year, you will get deposited in your bank account, half of your tax cut, at least $250 per child each month, a direct deposit into your account. So if you’re a working family with two kids, you’re going to get $500 a month into your bank account on the 15th of every month starting in July.”

Many retail companies are therefore expecting a significant boon to their earnings. As CNBC reports:

Dollar General Chief Financial Officer John Garratt said on a first-quarter earnings call in late May that the discounter did not include child tax credits in the company’s forecast for the rest of the year. He called it “a wild card,” with an impact that is difficult to measure, particularly as some other government benefits fade away.

Target Chief Growth Officer Christina Hennington said on a first-quarter earnings call that the extra funds could go toward back-to-school sales — a shopping season that retail experts already predict will be stronger than usual as parents and kids seek a fresh start and new clothes, notebooks and laptops for a more typical return to the classroom.

Economists affirmed to CNBC that the payments will be beneficial to retailers.

“It’s a good thing for Walmart and grocery stores,” said University of Notre Dame economics professor Jim Sullivan. “The retail sectors where middle- and lower-income families spend money are likely to benefit some from this.”

“This will fill a void with some of the other payments being no longer distributed,” said UBS retail analyst Michael Lasser. “It’s going to continue to support consumer spending.”

With a price tag of $1.9 trillion, President Biden’s American Rescue plan is among the largest federal stimulus bills in American history. It is exceeded only by President Trump’s $2.3 trillion CARES Act. However, a report from the Penn Wharton Budget Model — an initiative of the University of Pennsylvania’s Wharton School that offers nonpartisan analysis of landmark public policy proposals — found that President Biden’s legislation will be far less effective economically than President Trump’s.

The analysts predicted that the CARES Act dampened the slide into recession by 5% of GDP. The American Rescue Plan, however, only lessened the slide by 0.6% — primarily because it was passed when the United States economy was already nearing full recovery.

Likewise, President Biden’s legislation devoted $350 billion to state and local governments — a figure representing 18.4% of the legislation’s total, as well as a 233% increase over the CARES Act’s allocation in the same category. The Wharton analysts pointed out that government bailouts fail to meaningfully improve GDP.

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