The problem with direct payments, according to economists and others critical of the plan, is that much of the incentive would go to individuals not financially hurt by the Covid-19 pandemic. That means those extra dollars may not do much to boost economic activity.
The $ 1,400 checks go to almost anyone who earns less than $ 75,000. Taxpayers who file joint returns earning less than $ 150,000 are also eligible. Those who earn more may qualify for lower amounts, with a limit of $ 87,000 for individual tax holders to qualify.
“That money is not well targeted,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi said the only economic argument for the checks is that they are a politically viable way to get a lot of money into the economy pretty quickly.
“Politics is important, and speed is more important than getting it just right,” he said. “But I think this is the second or third best policy. It’s certainly not the most effective way to help.”
Many will not spend it
“The accepted theory of household behavior is that a one-off payment contributes little to additional spending,” said Joel Prakken, Chief US Economist at IHS Markit. “People who do spend will do so for purchases that are unlikely to be repeated. It’s getting harder to say it will be an immediate boost to the economy.”
Much of the challenge in sustaining consumer spending during the pandemic is that many of the goods and services that people spend money on in “normal” times are unavailable because of the crisis.
While Summers has been a proponent of direct payments in the past, he is skeptical that the proposal will be effective this time around. “I don’t even know if I am that excited about the $ 600 checks,” he said. “And I think it would be a pretty serious mistake to bring them to $ 2,000.”
Difficult politics
There is a chance that Biden’s proposal for the additional $ 1,400 payments will not be approved.
Most experts believe that the full $ 1.9 trillion package has little chance of becoming law, and is likely to be passed in a scaled-down form. In addition to dual support for the checks, there is also dual opposition. One of the foremost Democratic critics is Senator Joe Manchin from West Virginia.
“I help people on board who need help. People who don’t make it. People who don’t have a job can’t put food on the table,” Manchin told CNN in a recent interview. “Sending checks to people who actually already have a check, and who aren’t going to issue it, who put it in their savings account now, that’s not who we are. We’ve done an awful lot of it. It’s time. Now to target.” where that money goes. “
Senator Mitch McConnell, who will be the minority leader in the new democratically controlled senate, said he is also against a new round of stimulus checks despite the support of some members of his caucus.
“It’s no secret that Republicans have a diversity of views on the wisdom of borrowing hundreds of billions more of non-purposeful money, including for many households that have lost no income during the crisis,” he said in recent Senate remarks. “It is hardly clear that the federal government’s top priority should be to send thousands of dollars to, say, a childless couple who are well over six figures who are comfortable telecommuting throughout the year. It is our duty to seek help from those who need help. “