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Wednesday, September 28, 2022

The Success Of The COVID-19 Stimulus Checks Makes A Strong Case For More

Republicans have blamed President Biden and his third stimulus check for fueling inflation, absolving the previous two payments of any complicity as it was passed by a Republican president. And states controlled by Republicans, most recently Florida, have seized on the American Rescue Plan Act funds passed by President Biden to send stimulus checks to residents. And they have even gone beyond the federal stipulation to gross misspend the funds.

The most notable among them is Alabama. The Republican-controlled state financed a 4,000-bed prison even as the state under Gov. Kay Ivey is at the bottom in providing health care to its residents. The plan was pushed through in a special legislative session. 

States Overflowing With Funds As They Move In To Send Stimulus Checks To Residents

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Despite a sharp contraction when the US was first hit by the pandemic, state funds, mostly made up of tax receipt revenues, are overflowing. And this has been supplemented with generous federal funds under ARPA, with $350B in direct transfers plus over $300B in direct aid in the field of health infrastructure, education, and other measures to directly help out residents post the pandemic.

The states have until 2024 to commit the funds and until 2026 to fully spend them. After that, the funds will revert to the federal administration. Many policymakers say that revenues will revert to the pre-pandemic levels by then.

Stimulus Check
Stimulus Check

And states are making the most of this twin bonanza and have decided to send stimulus checks to their residents as inflation relief. Though the federal administration has stipulated how the funds are to be used, Republican states have spent it as they think fit, diverting funds to fuel their agenda ahead of the primaries and spending it on schemes that have not linked with the pandemic, including the prison being constructed in Arizona.

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Many states have used ARPA funds to make one-off investments in expectation of long-term benefits. And nearly every state is diverting funds to clear a collective backlog of $873B in pollution control, maintenance, and replacement infrastructure. ARPA funds have also been used to bolster the education and public-health systems that have been disrupted due to the upheaval linked to the pandemic.

States Send Stimulus Checks To Residents To Counter Inflationary Pressure

The $1.9T stimulus law enacted by the Democrats under ARPA in March last year despite stiff Republican opposition is presently helping prepare grounds for another round of stimulus checks, this time from the states, both Republican and Democratic.

At least 18 states have legislated on the issue and started sending checks or are in an advanced stage to take the step by the end of the year despite Congress remaining gridlocked over dealing with the worst inflation in over 4 decades.

California and Florida have joined more than a dozen states in announcing stimulus checks for residents to counter the immense pressure of record inflation. Life has turned into a full cycle for low and moderate-income groups as the economic recovery helped them pay off their debts, provide for their families during difficult times, and even save a part of the payments. This has been a great help during the inflation period when federal stimulus checks dried up.

Florida’s governor Ron DeSantis, a Republican blue-eyed boy and widely considered a contender for the 2024 Presidential elections assailed the stimulus checks and said that it was Washington at its worst only a few months ago. But he had no qualms in using $36M from the American Rescue Plan Act signed by President Biden to issue a $450 stimulus check to 60,000 families in Florida. That comes on top of the $1,000 cash support given to first-responders, again using federal funds.

For Governor Gavin Newsom of California, it will be the third stimulus check after the Golden State Stimulus Check I and II. He had initially considered a gas check worth $400 for each vehicle registered in the state, with families getting a maximum of two cards each. But he has gone for a more generous offer, buoyed by the budget surplus of $97B enjoyed by California.

California will be sending out a stimulus check of up to $1,050 to residents in one of the biggest stimulus check programs. The payments are part of a $308B state budget signed by the Governor. The checks will be within a $17B relief package that will also include the temporary suspension of sales tax by the state on diesel. It will also provide additional aid to help residents with their utility and rent payments. The inflation relief payments are tax refunds and will directly send $9.5B to residents of the state.

Stimulus Check
Stimulus Check

Joint tax filers declaring an AGI of $250,000 will also receive a stimulus check though it has been pared down to $200 for each filer plus another $200 for one dependent. For residents earning below $75,000 as individuals and $150,000 as joint filers, the payments work out to $350 per filer plus another $350 for at least one dependent, if any.

Couples earning jointly above $500,000 and individuals earning $250,000 will not be eligible for any payment. The checks will be sent either through debit cards or via direct deposit into the bank accounts of beneficiaries starting October this year.

State Stimulus Check Has A Section Of Economists Worried

A section of economists is wary of stimulus checks from states. They argue that it will only drive up inflation. But at this immediate stage, it seems the only solution. Further, any inflation bump is likely to be minimal as states are generally going for inflation relief payments to only a small section of the population, except in cases such as California which is sending payments to 23 million residents, around 60% of the population.

The state stimulus checks are in stark contrast to the $1,400 economic impact payment, or the third stimulus check. a vast majority of Americans qualified for the payment and is believed to have influenced the inflation rate by at least 3 percentage points.

The supply chains remain clogged while the war in Europe has further complicated matters. In this scenario, inflation is expected to remain high and will ease not before the next year. And people continue to believe that they deserve another stimulus check at least to tide over the inflationary crisis.

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