The Stimulus Bill Is ‘Better Than Nothing’ – But Not Enough to Boost the Economy
This time, Congress really means it. They are really going to pass that stimulus bill – still up for a vote as of Monday afternoon – which should be a huge relief to millions of people whose livelihoods have been hurt by the pandemic. Gregory Daco, chief U.S. economist for Oxford Economics, has already gotten a lot of attention for his tweet yesterday calling the bill “much better than nothing.” However, it may not be enough to offset a slowdown that is likely to last into the spring, if not longer.
The key limiting factor for the bill is that it cost less than $900 billion. That simply will likely not be enough to jolt the economy, with the U.S. trillions of dollars in debt (even more trillions than usual) and unemployment levels at rates comparable to the Great Recession. Another issue is who will receive relief funds (taxpayers with a 2019 income below $99,000) and who will not (state, local and tribal governments).
The centerpiece of the bill is a $300 weekly increase in unemployment benefits effective December 27 and continuing through March 14. This is smaller than the $600 increase in the original CARES Act. Although people hope that the pandemic will be over by mid-March, it could well stretch out longer.
It’s funny, I always thought stimulus checks were meant to stimulate the economy. These “survival” checks will be used to pay for back rent, unpaid phone bills, to keep the electricity company from shutting off power, etc.
— In a crowd all by yourself (@emperesspenguin) December 21, 2020
The second key feature of the stimulus is another check program. The government will send checks (or bank deposits) worth $600 per person to each family with a 2019 income below $75,000. The hope is that the recipients will spend the money to support businesses. This is good news for households that need the money, but not all recipients do. For households where the money isn’t needed to cover groceries or utilities, there isn’t much urgency to spend it. People can’t go to restaurants or travel, those working and attending school from home may not need new clothes, and jigsaw puzzles are cheap.
Finally, the bill includes an extension of the Paycheck Protection Program. Forbes reports that the requirements are being tightened in order to prevent the abuses under the first program. A key is that applicants will need to indicate necessity. The original PPP was subject to delays in the application process that frustrated small businesses that did not have strong banking relationships. Furthermore, many of those who applied did so not because they needed the money but because it was available.
The stimulus relief bill is over 5,000 pages long.
That should be 5 pages long, tops.
Direct payments to the people. Business relief. Enhanced unemployment.
— Mike (@FuctupMike) December 21, 2020
For example, houses of worship were included in the program to keep secretaries, musicians, and youth ministers on staff. These are generally not highly paid positions to begin with. And yet, megachurch pastors with media empires and private jets were also able to receive funds.
The big loser in the stimulus? State, local, and tribal governments. Their tax receipts are off at all levels. Sales taxes, hotel taxes, fuel taxes, income taxes, and transfer fees are all down, and needs have increased dramatically. Unemployment claims up. Medicaid programs are stretched by Covid treatment costs. Offices and schools have new expenses for personal protective equipment. And there is no help from the federal government.
The stimulus is good news, but let’s put it plainly: It’s unlikely to be enough to support the economy and turn this financial crisis around.
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