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Thursday, October 6, 2022

Weighing The Advantages And Disadvantages Of Stimulus Checks

Hopes of a fourth stimulus check have all but faded and it is up to the states to come up with measures to protect their citizens. The Economic Impact Payment and its two preceding stimulus checks were intended to stimulate the economy by directly injecting money into the economy through taxpayers.

With the economy taking a hit following the total shutdown caused by the pandemic, it was the only means of income during those difficult times for many low and middle-income people. It was the only source of money to put food on the table and pay for utilities and rent.

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Over 169 million payments were issued by the Internal Revenue Service under the third stimulus check payments. The last of the stimulus checks were followed by the enhanced child tax credit payments which gave parents up to $3,600 for each child. 50% of the funds have already been disbursed through monthly stimulus checks between July and December 2021. The balance will be a credit to the account of filers once they submit their income tax returns for 2021.

Stimulus Checks Benefitted US Citizens Greatly

It is apparent that the successive stimulus checks enormously benefitted the American people, especially the low and medium-income groups. Despite a turnaround in the economy in the last two quarters, the nation has slipped into a high inflation trap which has crossed a 4-decade high to touch 8.5%, though it has since eased off a little, it remains above the 8% mark.

It is apparent that Americans enjoyed enormous benefits from the stimulus checks at the federal level. But with the end of the federal support, states and cities with huge surplus funds are ready to return a substantial part of it to their residents even as they battle the economic downturn caused first by the pandemic.

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But even as states move in to support their residents, the Republican camp has been trying to lay the blame square on the third stimulus check. they contend that the record inflation has been caused by too much money being injected directly into the economy.

In the end, over $5T of stimulus funds were directly injected into the US economy and that included direct payment of $817 to individuals and families through the three rounds of the stimulus checks.

But analysts have countered that the impact of the third stimulus check was too little and too far away to have any significant influence on the present inflation. Getting the cash directly into the hands of people was the only way that people could be helped during the difficult times of the pandemic-induced lockdown.

The Stimulus Checks Helped The US Economy Stay Out Of Recession

The overall conclusion is that the stimulus support was the appropriate way to keep the economy out of a deep recession during the lockdown as seen during the 2008 economic meltdown.

Getting additional cash into the hands of people who need it most was the sanest move at that moment. But the administration needs to consider a few matters to minimize the negative effects of the stimulus payments.

The stimulus check admirably kept the economy from going into a recession. During the pandemic’s early stages, the high unemployment rate caused panic as it shot up to 14.8% at the beginning of 2020. It was the highest level ever recorded since 1948. The Dow Jones too slid by 37% within a month.

The economic effects could have had disastrous consequences in the absence of prompt action from the administration. The stimulus check stopped the economy from going headlong into a total economic slowdown and deflation. The costs could have been disastrous at this stage.

But The Stimulus Check Also May Have Contributed To The Inflation

The infusion of huge funds directly into the hands of people might have contributed to the rise in inflation. While the extent of the effect is debatable, indeed, prices go up when a lot of money chases a scarcity of goods.

The economic contraction during the pandemic helped suppress the supply chain and the availability of too few goods was manageable as long as the nation was in lockdown mode.

This led to a lot of money in the hands of the general population.

The Feds said that by end-2021, the economic stimulus checks had contributed to 3% points to the rate of inflation. And it has subsequently climbed to 8.6%.

11 Million People Could Stave Off Poverty Thanks To Stimulus Support

Even as the unemployment rates went up rapidly and businesses downed shutters, the specter of poverty loomed over millions of Americans. But this was avoided thanks to successive stimulus checks and other forms of support under CARES and ARPA.

Data revealed by the United States Census Bureau revealed that 11.7M citizens were saved from a drastic shortage in 2020 alone thanks to the economic impact payments. And the third stimulus check under the Rescue Plan Act was the most impactful of the programs and alleviated poverty to a large extent with its generous payment of $1,400.

Researchers at Columbia University noted that even as poverty soared to 16.3% at the end of 2020 with the end of several pandemic programs, by March next year, it had fallen to 9.3% thanks to the third stimulus check, tax refunds, and enhanced CTC stimulus check.

But many feel that the huge stimulus check support through direct and indirect means may have kept millions from joining the workforce. Ver 11 million jobs remained open, and the figure had doubled since the second quarter of 2020.

This surge in unfulfilled employment openings was fuelled by the disinclination of a major portion of the workforce to return to work as the pandemic created an atmosphere of panic. With ready cash in hand from the multiple stimulus support, the extended unemployment payments, and the deferment of student loans, all slowed down the return of workers to their jobs.

Improvement In Bank Balance And Lowering Of Credit Card Debts

Research revealed that around 60% of the money from the first stimulus check helped in paying off debts or boosting savings. This figure went up to 74% for the next two stimulus checks. This reduced debt loads for consumers and increased the savings balances of Americans.

But this also led to massive amounts of debt as the US Treasury borrowed around $6T. The administration must find a way to pay off this debt, or it could drag down the economy in the near future.

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