'Stimulus Checks Are The Least Important,' When Drafting Aid Package, Says Economist
(CBS Detroit) -- Congress probably won't vote on a second stimulus package by election day. The parties involved can't agree on the size of another round of stimulus, or even what a package might include. And a week is hardly enough time to finalize and draft a bill, push it through the two chambers of Congress and secure the president's signature. It's not even enough time to get it out of the House.
Nevertheless, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin continued to negotiate and make incremental progress through Thursday. But on Friday, with Pelosi holding firm at $2.2 trillion and the Mnuchin up to $1.9 trillion and neither side agreeing on specifics, negotiations turned to finger-pointing. No progress was made over the weekend. The difference in how much aid to give states and localities remains a key point.
One part of the package they do agree on, however, is the need for another round of $1,200 stimulus checks.
>>READ: Stimulus Package Update: While Politicians Negotiate, Economic Damage Continues
Senate Majority leader Mitch McConnell, who hasn't been involved in negotiations, brought two smaller bills to a vote last week. One was a $500 billion extension of the Paycheck Protection Program, which loans money to businesses to keep employees on staff during the economic downturn. The other was a $500 billion "skinny" package of stimulus that included a weekly federal unemployment benefit of $300. Neither included stimulus checks or aid for cities and states.
Both Senate bills failed to secure the necessary votes to move forward. Senate Minority leader Chuck Schumer called the "skinny" bill "emaciated." And a piecemeal approach was never going to satisfy Democrats, who have long supported a more complete COVID-19 economic relief package. Meanwhile, the $1.9 - $2.2 trillion price tag of the House/Executive branch package far exceeds the amount Republicans would be willing to spend.
Most economists see the Senate's package as inadequate to address the needs of households in an economy being wrecked by a worsening pandemic. "I would say $500 billion doesn't sound like a lot," says Yeva Nersisyan, Associate Professor of Economics at Franklin & Marshall College. "And another $2 trillion, and I would say why not. Because who knows how long this is going to last, right?"
"The bigger the better, at this point," Nersisyan says about the price tag of another stimulus package. "There are good ways to get to government deficits, and there are bad ways. The good way is to do it proactively. If you don't do anything, and there is a recession, there's going to be a deficit regardless, because of unemployment benefits, more people become eligible for food stamps and Medicaid. So you're spending more on those things, and your tax revenues are plummeting, because there's less income to tax. So, the deficit is going to get bigger regardless, and the dropping tax revenue is a very big factor in that. However, if you proactively stimulate the economy, you put a floor under it, you prevent that ugly way of getting a deficit and potentially end up with smaller deficits. But the point is, there is no harm in going big."
If a bill needs to be smaller for political reasons, stimulus checks could be removed. While many politicians certainly see giving large amounts of money to constituents as a winning strategy, the checks are not targeted at people who need it during a recession.
"It just goes to everyone," says Nersisyan. That includes people with jobs, if they earn under the $99,000 income threshold. (It also would exclude unemployed people who earned above the threshold.)
>>READ: Stimulus Package Update: What Happens To The Economy Without A Second Stimulus?
"If I get a stimulus check, I'm not going to spend it," says Nersisyan. I'm going to save it, because there's nothing to spend it on. But somebody who lost their job and gets unemployment benefits, then they're definitely spending the money. That money gets recirculated back into the economy more so than the stimulus checks."
Stimulus checks are a very blunt instrument for stimulating the economy. Paycheck protection and additional unemployment benefits are aimed at people who will likely spend the money and therefore more effective, According to Nersisyan, "if you could do another paycheck protection, or just take over payroll like some other countries have done, that would be ideal, because then people are still staying attached to their employers. So that would be ideal, of course. But then there are still the people who have already lost their jobs to take care of. So then the unemployment benefits extension. And ideally, that would be number two."
Based on a U.S. Census survey from June, 15.7 percent of recipients used that money to pay down debt and another 14.1 percent saved it. Those percentages were higher for people with household incomes above $75,000. In general, close to 70 percent still spent their stimulus money, often on household expenses. And that's significant. But other forms of aid, like additional unemployment benefits, do more good.
"Stimulus checks are the least important," says Nersisyan. "While for unemployment benefits, most of it is probably getting spent on things like rent and groceries and so on. So that puts that into somebody else's pocket, so that they can spend. So it continues its journey throughout the economy. Whereas if I just put it in my bank account and don't spend it, it just stays there. It's not stimulus really."