Stimulus Checks Aren’t A Bad Idea, But They’re Not Enough
Congress is about to embark on a huge spending spree. Last Thursday, after the Trump administration announced that it supports a stimulus package to help individuals and businesses affected by the coronavirus pandemic, Senate Republicans unveiled a massive spending bill that includes a controversial provision: direct cash payments to many Americans.
The legislation is still in flux, and Republicans and Democrats have clashed on the details of the payments, like who should get checks, whether they should go out more than once, and how much they should be for — but it seems likely that some form of direct cash relief will end up in the final package.
On the surface, the idea of sending checks to Americans stricken by a vast and sudden economic slowdown feels like a pretty obvious first step. The unemployment crisis is unfolding at a terrifying speed, and people need money. So why not simply give it to them? There’s also some evidence that the checks are increasingly popular with Americans as the massive economic fallout of the coronavirus pandemic comes into focus. A poll conducted March 16-17 by liberal think tank Data for Progress showed that support for $1,000 cash payments to Americans has skyrocketed since early March, with 58 percent of the country now in favor.
But is an influx of cash actually the best way to cushion workers from what seems likely to be the most dramatic shock in recent memory? The consensus, based on my conversations with almost a dozen economic experts, is that it can’t hurt to go ahead and send out checks. But that probably shouldn’t be our only — or even our primary — economic response. There are preexisting systems, like unemployment insurance programs, that can quickly get money to the people who are losing their jobs. And in the short term, focusing on shoring up those systems could be just as important as determining how big a windfall Americans should get in the mail.
“Right now, the risk of overreach is negligible and the risk of doing too little is very high,” said Indivar Dutta-Gupta, the co-director of the Georgetown Center on Poverty and Inequality. “So stimulus checks should really just be one part of a much broader effort to help the tens of millions of people who are going to be hurt economically by this pandemic.”
On Thursday, after the Senate Republicans’ economic proposal was unveiled, Republican Sen. Richard Shelby questioned the value of sending out a slew of payments over a more targeted approach. “I personally think that if we are going to help people, we ought to direct the cash payments maybe as a supplement to unemployment, not to the people that are still working every day,” Shelby said. Extra funding for the unemployment system is one of the options Congress is considering.
He had a surprising amount of company among some of the left-leaning experts I spoke with, who said the unemployment insurance system needs a lot of help. “I’m not opposed to sending out checks, but it’s not an especially efficient way of helping people right now,” said Michele Evermore, a senior policy analyst at the National Employment Law Project. “We have a system that is literally designed to help people who have become unemployed, so we should be focusing on making sure that system is capable of responding to the huge surge of people who are relying on it.”
Shoring up the unemployment insurance system came up in almost every conversation I had. And that’s because the system is already threatening to buckle as the number of people applying for unemployment benefits spikes. According to the Department of Labor, new filings for job losses rose 33 percent for the week ending on March 14. And that data doesn’t even cover last week, when businesses across the country temporarily shuttered and a tidal wave of layoffs followed. The state offices that administer unemployment benefits are unprepared to meet the demand in multiple ways — across the country last week, websites crashed, phone lines jammed, and lines snaked outside unemployment offices. And many states don’t have the funds to handle a surge in unemployment claims without assistance from the federal government.
Congress already allocated $1 billion in funds to help states ramp up their capacity to dole out unemployment benefits in a bill that passed last week. But experts said there’s a lot more that could be done to use the unemployment insurance system to get money to people quickly. For instance, only about 27 percent of unemployed Americans actually received benefits in 2016, in part because of the complicated maze of restrictions that people face when they apply. Some states are already starting to remove barriers — like waiting periods or some eligibility requirements — to ensure that more people qualify. During the last recession, the federal government also pitched in money to help cover the ballooning cost of the state unemployment insurance programs, and it seemed to pay off, according to studies that were conducted later.
Arindrajit Dube, an economics professor at the University of Massachusetts, Amherst, suggested increasing the amount of money that recipients are eligible for, too. Right now, unemployment insurance only replaces between one-third and one-half of a person’s income. In normal times, Dube said, the payments should be capped around 50 percent of workers’ normal wages — if the benefits were more generous, people might not look very hard for another job. The trouble is that right now, we have the opposite problem. “We want people not to work for health reasons,” he said. “So for our purposes in this very specific and unique moment, having a generous payout accomplishes exactly what we want it to.”
Putting more money in Americans’ pockets through stimulus payments could help too, Dube said — unless the checks simply can’t get out to people as quickly as they need them. During the 2008 financial crisis, Congress sent a tax rebate out to many Americans, which is similar to what’s being proposed now. A study conducted in the wake of the payments found that the rebates did raise consumer spending. But the checks didn’t actually arrive at people’s homes until several months after the legislation had passed, which could be a big problem for low-wage workers, who often have minimal savings.
There are other ways to get funds to low-income Americans, Dutta-Gupta told me — for example, by putting more money onto the cards that food stamp recipients use to buy groceries. Angela Rachidi, a Rowe scholar at the right-leaning American Enterprise Institute, meanwhile, favors funneling money to poor families through an emergency version of the earned income tax credit, a subsidy that supplements the earnings of low-income workers when they file their taxes. “These are the people who are least likely to be able to work from home, and many of them are single parents, which means they may need to take time off work to watch their children,” Rachidi said. “We already know they’re vulnerable — why not focus on them first?”
The problem with more targeted interventions is that, inevitably, they leave some people out. Freelancers and independent contractors working in the “gig economy,” for example, don’t usually qualify for unemployment insurance. Part-time workers also can’t get access to unemployment benefits in some states. And there are plenty of people who will be financially harmed by the economic shutdown, but who won’t necessarily lose a job. “The economic need is going to be tremendous, and unemployment is only one piece of it,” said Andrew Stettner, a senior fellow at the left-leaning Century Foundation. “Some people are graduating from college and might have trouble finding work. You might lose overtime or a bonus.”
But Stettner added that from his perspective, the stimulus checks are only one piece of the puzzle. “There isn’t one single way to shore up people’s incomes right now,” he said. “We need to be broad and targeted. On its own, a $1,000 check is not going to solve many people’s problems right now.”