The problem with direct payments, according to economists and others who are critical of the plan, is that a large portion of the stimulus will go to individuals who were not financially injured by the Covid-19 pandemic. This means that the added dollars may not help much to boost economic activity.
The $ 1,400 checks will pay the most to anyone earning less than $ 75,000. Taxpayers who file joint returns that earn less than $ 150,000 will also qualify. Those who earn more may qualify for lower amounts, with a maximum of $ 87,000 for individual tax filings to be eligible.
“The money was not well targeted,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi says the only economic argument for the checks is that it is a politically feasible way to get a lot of cash into the economy fairly quickly.
“Politics is important, and speed is more important than getting it right,” he said. “But I think that’s the second or third best policy. It’s definitely not the most effective way to help.”
Many will not spend it
“The accepted theory of household behavior is that a one-time payment is of little help in incurring additional expenses,” said Joel Prakken, chief economist at IHS Markit. “People who do spend it will do so on purchases that are unlikely to be repeated. It’s becoming harder to argue that it will be an immediate stimulus for the economy.”
A big part of the challenge of maintaining consumer spending during the pandemic was that many of the goods and services that people spend money on in ‘normal’ time are not available due to the crisis.
Although Summers has been a proponent of direct payments in the past, he is skeptical that the proposal will take effect this time around. “I’m not even sure I’m that enthusiastic about the $ 600 checks,” he said. “And I think it’s a serious mistake to take it to $ 2000.”
Difficult politics
Chances are that Biden’s proposal for the additional $ 1400 payments will not be approved.
Most experts believe that the full $ 1.9 billion package has $ 1.9 less chance of becoming law and is likely to be passed on in a scaled-down form. In addition to dual support for the checks, there is also dual opposition. Among the leading democratic critics are Sen. Joe Manchin of West Virginia.
“I’m on board helping people who need help. People who can’t get it right. People who do not have jobs can not put food on the table,” Manchin told CNN in a recent interview. “Sending checks to people who basically already have a check and who are not going to issue it, who are now putting it in their savings account, that’s not who we are. We’ve done a lot of it. It’s time now to aim where the money goes. ‘
Sen. Mitch McConnell, who will be the minority leader in the new Democratic Senate, said he is also against a new round of stimulus controls despite the support of some members of his caucus.
“It’s no secret that Republicans have a variety of views on the wisdom of lending hundreds of billions more money that is not being targeted, even to many households that lost no income during the crisis,” he said recently in the Senate said. “It is hardly clear that the federal government should have the highest priority of sending thousands of dollars to, for example, a childless couple who make up six figures who are comfortably teleworked all year round. Our duty is to get help to the people who need help. has. “