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Spend or save:Will Biden’s stimulus cheques boost the economy? | Coronavirus pandemic News

United States President Joe Biden’s $1.9 trillion stimulus package is set to return to the House of Representatives this week for a final vote before landing on Biden’s desk for his signature soon afterwards.

The bill passed by the Senate on Saturday featured a pared-down version of one of Biden’s signature promises: $1,400 stimulus cheques sent directly to millions of Americans who are struggling a year into the coronavirus pandemic.

In order to get support from moderate senators, Biden agreed to lower the income limits for the payments to $80,000 per individual, $120,00 for single parents, and $160,000 for couples. The Senate bill maintains the federal top-up to state unemployment benefits at $300 per week and extends it until September 6, while the House’s bill would keep it at $400 and end the payments in August.

Speaking shortly after the Senate passed the American Rescue Plan, Biden said he expects Americans to start receiving cheques this month. The White House estimates 160 million households will get them.

What remains to be seen, however, is whether or not the $1,400 cheques will actually stimulate the world’s largest economy as intended. Economists are split on what Americans will actually do with the next round of cheques and what impact — if any — they’ll have on the roughly two-thirds of US economic growth that relies on consumer spending.

Tighter limits

Like nearly everything in the polarised world of US politics, the effectiveness of the next round of coronavirus relief aid is in the eye of the partisan beholder.

After the Senate’s changes, approximately four million Americans who received stimulus cheques as part of December’s $900bn stimulus round won’t be seeing them this time, said Robert Scott, a senior economist at the progressive-leaning Economic Policy Institute, who calculated the number based on 2018 tax filing data.

If you really want to stimulate spending … the most impactful thing you can do is something along the lines of what the UK did last year, which was to give people a credit to eat out at restaurants.

Stan Veuger, American Enterprise Institute

“It’s a small, symbolic change in the number of individuals and families getting a cheque,” Scott told Al Jazeera.

Richard Prisinzano, director of policy analysis at the Penn Wharton Budget Model — a research team at the University of Pennsylvania that describes itself as a “sandbox” for testing public policies — agrees.

“The quicker phase-outs save some money. Our estimates are that it saves about $12bn. On $1.9 trillion, that’s not a ton,” he told Al Jazeera.

To spend or not to spend?

The main question for economists is whether the bill will actually stimulate the economy by motivating Americans to get out and spend.

Stan Veuger, a resident scholar in economic policy studies at the conservative-leaning American Enterprise Institute, says the bill’s “goals are twofold, to stimulate the economy and to provide relief to people who are struggling.”

Scott, Prisinzano, and Veuger all agree that cheques have the biggest impact when given to lower earners.

“People who need the money the most are more likely to spend the money they’re given,” Veuger told Al Jazeera.

I want to stress that in my view, this is not stimulus spending. It’s really relief funding that’s needed to keep the economy going, especially for those who have been hardest hit by the pandemic.

Robert Scott, Economic Policy Institute

Higher earners — many of whom have been able to shift to remote work and who have been less impacted by the pandemic — are more likely to stash their cheques in savings accounts rather than inject them into the economy.

For roughly 73 percent of recipients, especially “higher-income folks, cheques are going to be saved or go to things like stock markets or paying extra on the mortgage,” Prisinzano said.

The changes from the Senate “undid some of the top-end issue, but didn’t really boost the lower end,” he added. The cheques are still a one-time payment, even for people living below the poverty line, for example.

Scott argues that phasing out the payments at a lower income level isn’t the right way to go. Even if some Americans choose to stick their stimulus cheques in their savings accounts, the injection of cash “is needed in the economy, whether it is saved or spent,” he said.

Sorely needed relief

More than 10 million Americans were behind on rent at the end of 2020, collectively owing $57bn in back payments, according to an analysis by Moody’s Analytics and the Urban Institute (PDF).

Food banks have seen record numbers of people lining up to get help, and the non-profit Feeding America projects that 50.4 million people in the US are food insecure, up 13.2 million from 2018 (PDF).

In that context, Scott argues, it’s tough to classify the bill as stimulative at all.

The biggest (stimulative effect) is getting the pandemic under control. You can give people money, but if restaurants aren’t fully open and people aren’t going out and spending … these sorts of things aren’t going to stimulate the economy.

Richard Prisinzano, Penn Wharton Budget Model

“I want to stress that in my view, this is not stimulus spending,” Scott said. “It’s really relief funding that’s needed to keep the economy going, especially for those who have been hardest hit by the pandemic.”

Those stimulus cheques and boosted unemployment benefits are the most timely relief that Biden’s bill offers. The effect of other measures — such as expanded tax credits — won’t be felt now.

“[With] expanded child tax credits… the taxpayer doesn’t get that until they file their 2021 taxes, which would be the spring of 2022,” Prisinzano explained.

A hefty price tag

Whether the relief now is worth the long-term debt implications is also a matter of debate. The non-partisan Congressional Budget Office (CBO) projected last week that the US’s debt would balloon to more than double the country’s gross domestic product by 2051.

A CBO forecast released before the passage of Biden’s bill sees the US economy growing at a strong 4.6 percent annual rate this year, leading some to debate whether the $1.9 trillion price tag is really worth it.

Scott argues it is.

“It will raise spending and help the economy recover faster. More saving now will fuel more spending over the near future,” he explained, adding that without Biden’s bill, “the overall level of employment will not recover to pre-recession levels until 2025.”

Speaking shortly after the Senate passed the American Rescue Plan, US President Joe Biden said he expects Americans to start receiving cheques this month [File: Jonathan Ernst/Reuters

Prisinzano said controlling the spread of COVID-19 is the most essential way to stimulate the economy, echoing remarks by Federal Reserve Chairman Jerome Powell.

“The biggest [stimulative effect] is getting the pandemic under control,” Prisinzano said. “You can give people money, but if restaurants aren’t fully open and people aren’t going out and spending … these sorts of things aren’t going to stimulate the economy.”

Consumers also have to feel safe enough to participate in the economy, which has more to do with getting the virus and new variants under control than with just reopening businesses, Scott said.

Veuger sees more stimulative possibilities in incentive programmes rather than cheques.

“If you really want to stimulate spending … the most impactful thing you can do is something along the lines of what the UK [United Kingdom] did last year, which was to give people a credit to eat out at restaurants,” he said. That incentivises spending without displacing future consumption.

Then there’s the overarching issue of having to work within the current systems to deliver relief and stimulus money. Unemployment benefits are distributed by states, and many state systems “are totally antiquated. They have computer systems from the 1970s and ‘80s and they couldn’t cope with the flood of applicants,” Scott explained, adding that the cheques are also “kind of a blunt instrument” when it comes to getting money to who needs it most.

Relief or stimulus, how politicians classify current spending will impact how they approach future packages once the economy opens back up.



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