It’s an idea as old as government: “free” money for all. These days, politicians have taken to call it a “stimulus” rather than “a giveaway.”
No matter what it’s called, it’s very expensive. There are several plans floating around on Capitol Hill thrusting money into everyone’s pockets and bidding them good luck and God bless and please don’t spend it all in one place.
Congress tried it in 2009 during the financial crisis. More than 52 million people received a check of $250 each. Everyone else got a tax rebate in the form of lowered withholding. The program was judged a success by most economists, who pointed to the 2.4 percent rise in nondurable consumption for the 3rd quarter in 2009.
But the effects were uneven and temporary. A lot of that cash went to paying down credit card debt rather than being spent at your local hardware or clothing store. And there was a hefty price tag: $65 billion for the cash, rebates, and tax credits.
In this unprecedented financial situation for the country, Congress is once again looking to stimulate the economy by the easiest — and most politically popular — way possible. There have been various stimulus schemes proposed, but it appears that both Republicans and Democrats on the Hill are prepared to give the American people about $1,000 each to spend as they will.
This wouldn’t be a one-off benefit. Some members, like Republican Senator Tom Cotton, are recommending the stimulus be handed out monthly.
Romney only called for a one-time injection of $1,000 to Americans, while Cotton’s plan is monthly.
He gave an example of $4,000 per month going to any family of four for the duration of the crisis.
A spokesman for Cotton later clarified that the Senator has not settled on a figure.
The payments Cotton is targeting would come from either unemployment insurance or through a tax rebate.
Senator Josh Hawley’s plan is a little more fleshed out. He’s calling it “The Emergency Family Relief Act of 2020” and would:
- Provide families experiencing school closures or financial hardship a fully refundable monthly benefit lasting through the coronavirus emergency to make it through this crisis unscathed. The benefit matches the IRS’s monthly standards for household expenses:
- $1,446 for a family of three
- $1,786 for a family of four
- $2,206 for a family of five
- Guarantee timely benefit delivery every month during this emergency by building on existing federal payment and verification infrastructure run by the Treasury Department and expedited applications utilizing past tax return data for prior filers
- Target those most in need — providing its full benefit to all single parents making less than $50,000 and to all married parents making less than $100,000 before phasing down the credit value — with a benefit generous enough to cover real costs.
We’re certainly looking at a several-hundred-billion price tag for the plan, which may be a non-starter for most Republicans, but the outline of the plan has its attractions. It would target those who need it most and the most vulnerable to economic disruption.
But isn’t there a “moral hazard” in just giving this money away?
“Unlike the financial crisis, there really isn’t much of a moral hazard issue here,” the bank’s head of U.S. public policy research said on “Squawk on the Street.” “You’re not sort of rescuing folks from making poor decisions from themselves.”
The concept of “moral hazard” has been associated with the actions of banks in the run-up to the financial crisis. It describes a belief that banks minimized or disregarded risky actions because they believed the government would step in with taxpayer dollars in case of emergency.
Zezas said he thinks lawmakers are aware of the fact that the coronavirus is a biological and public health crisis that carries significant economic consequences, not one beginning in the financial sector and emanating outward.
“I don’t think that’s really is lost on anyone and, in fact, I think it probably helps speed things along,” he said.
More than anything, passing an individual stimulus bill will inject confidence in the markets and give hope to many Americans who face personal economic ruin because of the pandemic. That’s why this is likely to be a bipartisan effort. There will be wrangling, of course, and a lot of horse-trading. But if the crisis is still upon us, we’ll likely see something passed by the beginning of summer.