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Wednesday, September 28, 2022

State Stimulus Checks Continue To Go Out Despite Fears Of Further Inflation

The federal stimulus checks are a thing of the past. The third stimulus check was the last in the series of pandemic-related measures that the federal administration took to protect low and moderate-income earners as they lost their source of income suddenly to the complete economy shut down.

The economic downturn forced by the pandemic compelled the federal administration to take immediate steps to prevent people from starving or losing their homes. It started with the $1,200 stimulus check immediately after the nation went into a prolonged lockdown in April 2020.

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Two stimulus checks followed in quick succession in December 2020 of $600 and then the $1,400 stimulus check or the economic impact payment under the American Rescue Plan Act signed by President Biden in March 2021.

The stimulus checks put as much as $10,000 or more in the hands of a family of around 4 members. For the first time ever, many families were able to pay off their credit card debts and also other high-interest debts and even managed some savings.

The stimulus check payment was only a part of the ARPA. A substantial part of the payments went to businesses, states, local bodies, cities, and other organizations as they struggled to get back on track after the pandemic setback.

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The stimulus checks were followed by the enhanced child tax credit stimulus check intended for children. These monthly checks continued for 6 months between July and December 2021 and gave between $250 and $300 per month per child to families depending on their age. It made up half of the total payments while the other half was paid after beneficiaries filed their income tax returns for 2021 in 2022.

Concern That The Federal Stimulus Checks Were Behind Inflation To Some Extent

Amid the excitement behind the stimulus checks also lay a nagging concern that the well-intentioned payments ended up contributing to the record inflation figures that threaten to again disrupt the economic recovery post the pandemic.

The present economic scenario is a lot different than it was back in the initial stages of the pandemic. The unemployment rate then soared to 14.7% (April 2020). It has now slid to a healthier 3.6%.

Inflation on the other hand has touched a 40-year high with the June figure an alarming 9.1%, the highest figure since December 1981. With warning bells sounding in a deep recession, the prices of gas, food, and other essential commodities, utilities, and home rent have surged to levels that are unaffordable to a large section of Americans.

Experts Contend Stimulus Check Behind At Least Part Of The Record Inflation

Some experts, especially from the conservative camp, and Republican politicians have warned that the stimulus checks, especially the Economic Impact Payment were behind the inflation, at least to some extent.

Now with states stepping in with stimulus checks of their own, there are rising concerns that it could add to inflation. They say that giving out free money to the general public was a flawed policy and would increase inflation further.

Around a dozen states have already announced measures to send stimulus checks in various forms to residents by the last quarter of this year. the latest to announce it was California and Florida, states on both sides of the political divide.

Governor Gavin Newsom of California announced at the end of June that he had signed a fresh state budget proposal that will lead to stimulus checks in the form of direct tax refunds of a maximum of $1,050 to 23 million Californians, around 60% of the total residents in the state.

The Governor said that the goal was to help battle inflation. He said that the residents of California were going through a tough stage due to an inflation-related rise in expenses. The price of gasoline is the highest in California. He said that the administration was giving back $9.5 billion out of the healthy trade surplus of $97 billion enjoyed by the state.

California isn’t alone in announcing stimulus checks for its residents. The state administration of Oregon said in June that it would give away a one-off stimulus check worth $600 to over 236,000 homes who were beneficiaries of the Earned Income Tax Credit in 2020.

In Colorado, Governor Jared Polis announced that residents would receive a stimulus check of $750 for individuals this summer with joint filers receiving $1,500.

Governor Polis said that the state residents were feeling the pressure of inflation fuelled costs, especially low and moderate-income families. He said that it was not prudent to sit on taxpayers’ money when it could be better utilized to make life easier for state residents.

Other states that are moving ahead with stimulus checks for their residents include Georgia, Delaware, Illinois, Indiana, Idaho, New Jersey, South Carolina, and Virginia.

New Mexico and Maine have already begun sending stimulus check payments to their residents. The latest to announce payments to their residents was Republican-ruled Florida. The state has announced a $450 stimulus check to children. Around 60,000 families are expected to benefit from this measure. Even related and non-related caregivers will benefit from the measure.

How Will Stimulus Checks Affect Inflation Figures

The stimulus checks were just what the economy needed when it was paid out to millions of Americans. It was the quickest and most complete way to send out payments bypassing the bureaucracy that would have substantially slowed down the whole process.

Citizens were on the verge of starvation and homelessness and were facing defaulting on their loans which would have greatly affected their ratings for future loans. The payments helped buoy the finances of many families.

Economists have said that the third stimulus check was too big an amount and was responsible for at least part of the inflations. The San Francisco Federal Bank has said that the stimulus checks were responsible for at least a 3 percentage increase in inflation rates by the end of 2021.

Fiscal support measures that were meant to lower the impact of the economic effect led to inflation rates that were substantially higher than in other developed nations like the European Union and the UK. It was probably because of the large fiscal response.

Economists have blamed other issues too such as the shift in consumer trends from services to goods during the pandemic period. This spike in demand caused a shortage of goods that were in part responsible for the spurt in prices of essential goods.

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