Second Stimulus Check At Risk Again?

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[8/20/2020] Could The Republican Skinny Stimulus  Jeopardize Second Stimulus Check?

The second Coronavirus aid package faces an impasse as Democrats and Republicans are unable to agree on the size and specifics of the stimulus. Earlier this week, Senate Republicans started circulating a new and significantly pared down stimulus proposal, which makes no mention of the second round of direct stimulus payments and reduces additional unemployment benefits (which expired at July end) from $600 per week to $300. So what are the odds that this plan will go through, jeopardizing the possibility of a second stimulus check?

The new proposal aims to balance government spending and the continued reopening of the economy by protecting businesses from virus related lawsuits while providing funding for testing and re-opening of schools. [1] The package is likely to cost about $500 billion, well below the $3 trillion HEROES Act proposed by Democrats and roughly half the $1 trillion HEALS Act proposed by Republicans in July.

However, we think it’s quite unlikely that such a package would be passed, given that both Democrats and Republicans have appeared to agree on a second stimulus check until now. Stimulus checks are seen as the most popular aspect of the stimulus packages and have a direct impact on low and middle-income households. President Donald Trump has also shown support for further stimulus payments in the past. Considering that it is an election year, we believe it’s unlikely that a final package will be passed without direct payments.

To recall, Democrats had proposed payouts of $1,200 per family member, with the total payments of as much as $6,000 per family. In comparison, the $1 trillion HEALS Act proposed by Republicans as a follow up to the CARES act passed in March, proposed up to $1,200 per individual, subject to annual income, with an additional $500 per dependent.

How do stimulus packages impact the Federal Debt? See our analysis An Overview Of U.S. Government Debt for more details on U.S. government debt, long-term interest rates, and fiscal deficit over the last decade.

[7/21/2020] Narrowed Eligibility On Second Stimulus Checks?

With the Congress getting back into session this week, all eyes will be on the second federal stimulus package and stimulus checks. We think that another round of checks is reasonably likely, given the slow economic recovery, a growing number of Coronavirus infections in the U.S. South and West, and some political consensus with Republicans lawmakers warming up to the idea of more direct payments. However, the size and scope of the payments could be smaller than before.

Under the first round of direct payments that were sent out in April, individuals earning under $75,000 a year and married couples earning under $150,000 were eligible for the full payment of $1,200 per adult and $500 per dependent. About 159 million stimulus checks were processed as of early June, implying that roughly half the U.S. population received checks. [2] Now, a potential second-round of checks could have a narrowed eligibility, as Senate Majority Leader Mitch McConnell has hinted that the income threshold could be reduced to $40,000. Even if the eligibility remains the same, it’s possible that the size of the checks could be reduced. Republicans – who control the Senate, are looking at a total stimulus package of about $1 trillion, below the $2 trillion stimulus package signed in March and well below the $3 trillion that Democrats proposed under the Heroes act that is held up in the Senate.

[7/6/2020] Will Strong Jobs Numbers Cause A Rethink On Second Stimulus Check?

Unemployment figures in the U.S fell to 11.1% in June, as the Bureau of Labor Statistics reported that a record 4.8 million jobs were added over the month.  As employment figures improve, is it possible that Washington will re-think another round of direct stimulus payments? Probably not. There are multiple factors that could decide whether another stimulus will happen, including the direction of the health crisis, economic conditions, cost of another stimulus, as well as political factors, and going by these trends, another round of payments looks likely.

For a detailed breakdown of the components of the CARES Act signed in March 2020 view our analysis A Breakdown Of The $2 Trillion Coronavirus Fed Stimulus

Firstly, the economic picture doesn’t look very sound just yet. While 7.3 million jobs were added over the last two months, it still doesn’t compensate for the 22 million job losses of March and April. Moreover, there has been a resurgence of Covid-19 cases through the U.S. South and West, with countrywide daily new cases touching new highs. This could potentially result in another round of lockdowns, hurting the economic recovery and employment figures going forward.

Secondly, political conditions also point to a second stimulus check. While Democrats are in favor of another round of direct stimulus payments, Republicans have shown some opposition. However, as of late June, President Donald Trump said that another round of stimulus was on the way, indicating that it could be larger than the first round while Senate Majority Leader Mitch McConnell also indicated on Monday that the next relief package “could well” include more direct payments.

Thirdly, another round of direct payments may not be too costly in the context of the projected 2020 fiscal deficit or the U.S. national debt. The first round of direct payments likely cost the government about $300 billion [3], or less than 8% of the projected $3.8 trillion fiscal deficit this year.  [4] Considering that these checks have a direct impact on Americans, the cost-benefit tradeoff could make sense to lawmakers.

[6/26/2020] How Many Stimulus Checks In 2020?

The U.S. government tried to soften the financial impact of the Coronavirus and associated lockdowns on Americans via direct cash payments that were part of the stimulus package signed into law in mid-March. Now, it appears quite likely that another round of stimulus checks could be in the offing, as economic conditions remain weak, with political leaders also hinting at another sizable stimulus package. Below, we detail the status of the first round of stimulus and why we believe another round of direct cash payments looks likely.

For a detailed breakdown of the components of the CARES Act signed in March 2020 view our analysis A Breakdown Of The $2 Trillion Coronavirus Fed Stimulus

Stimulus Payments Under CARES Act

A total of about $300 billion was earmarked for direct payments to workers, their families as well as senior citizens, as part of the $2 trillion stimulus package called the CARES Act, that was signed into law in March to ease the financial impact of the pandemic, boost unemployment benefits, and offer loan programs for businesses. The payments amounted to $1,200 for individuals with annual incomes of under $75,000 and $2,400 for married couples, with income up to $150,000. Americans with earnings above these levels also receive a partial payment up to a certain income level. As of early June, the 159 million stimulus checks worth more than $267 billion were paid out, meaning that this round of stimulus is largely done. [5]

Slow Economic Recovery Makes Case For Another Round Of Checks

Covid-19 has caused the largest economic shock in the U.S. post the Great Depression of the 1930s. The Federal Reserve expects the economic recovery to take time noting that it sees interest rates staying near zero-levels through 2022 while projecting that the unemployment rate could stand at about 9.3% by the end of this year. This is up from 3.6% in January, although this is still well below the 14.7% rate seen in April. While the government enhanced unemployment payments under the CARES Act by $600 per week, this additional benefit is set to expire from the end of July, and it’s unlikely that it will be extended fully, considering that it might give people less incentive to get back to work. Instead, it’s possible that the government could come up with a package that helps Americans more broadly.

Political Considerations

There are political differences at play as well. Democrats, who control the House of Representatives in Congress, want another round of direct stimulus along with an extension to the enhanced unemployment payouts, as part of their $3 trillion HEROES Act, which is a follow-on to the CARES act. However, the bill faces resistance in the Republican-controlled Senate. On the other hand, Republicans have been proponents of a payroll tax holiday, which would effectively increase workers’ paychecks. That said, President Donald Trump has indicated that the government would be doing another “generous” stimulus package, which could be bipartisan and this indicates that there is a reasonable chance of another round of stimulus checks.

The government’s first stimulus package helped the stock market rebound strongly despite tough economic data. View our analysis on how the Coronavirus Stock Market Compares To Previous Historic Market Crises for more details on how the current market compared to the Great Depression & Great Recession markets.

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Notes:
  1. Republicans Float a Scaled-Back Stimulus Bill, New York Times []
  2. IRS News Release []
  3. Visual Capitalist []
  4. Budget Projections: Debt Will Exceed the Size of the Economy This Year, CRFB []
  5. U.S. Department of the Treasury Press Release, June 2020 []
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