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Unemployment/Stimulus check

Why The Next Stimulus Check Seems Inevitable



A month ago, when the House of Representatives passed the Heroes Act on May 15th, it was looking like we were on the other side of the pandemic. States were beginning to open up, enter their versions of a “Phase 2,” and various economic indicators seemed to show that the effects of the sudden shutdown were abating. Unemployment, while still at historic highs, dropped from 14.70% in April 2020 to 13.30% in May 2020.

By all economic indicators, it seemed that additional stimulus wasn’t necessary. The stock market had roared back, unemployment was reversing course, and the rhetoric out of Washington D.C. seemed to match. At a Fox News virtual town hall ion May, President Trump said the next stimulus package must have a payroll tax cut and that there was “no rush” on the next package. As the $600 unemployment benefit was set to expire, Republicans proposed “back to work” bonuses as an incentive to get people back to work.

Then, as some states opened up faster than others with varying degrees of social distancing and face mask enforcement, we saw the number of confirmed cases increase. Our most populous states like California, Texas, and Florida all started breaking their single-day coronavirus case increase counts on a daily basis.

Those states put a pause on their re-opening and, in some cases, started to shut back down again.

Many of the economic indicators are lagging indicators. They only show what has happened after it has happened but we know that economic activity slows down when you shut down.

It came as no shock to anyone in America that a recession started after economic activity peaked in February.

We didn’t need the National Bureau of Economic Research to tell us that – shutting down an economy has that effect on economic activity. Just as the first shut down impacted the economy and put us into a recession, this one is likely going to have a similar effect.

And you can see politicians starting to change their tune on stimulus.

Just a few days ago, President Trump said the next stimulus package would be “generous” and announced in the next few weeks. He then said privately that he’s “largely supportive of sending Americans another round of stimulus checks.” Treasury Secretary Steven Mnuchin said the administration is “very seriously considering” more stimulus checks.

Politicians will look at the economic figures to make a determination as to whether the American people need more stimulus – you can too.

The stock market is always a popular metric but it’s not the one many look toward when they think about the health of the economy. You have to keep your eye on the unemployment figures to get a good sense of how strong the economic engine is running. The U.S. Bureau of Labor Statistics reports a lot of data, including unemployment, on a regular schedule you can review here.

Keep an Eye on Trump’s Poll Numbers

One non-economic number to look at? President Trump’s poll numbers.

The administration made a point to adjust roll out of the first stimulus check to include a letter from President Trump. This felt like a savvy marketing move so Americans felt like they were receiving a stimulus check because of the President.

As his poll numbers slip, he may see additional stimulus as a way to increase support for his chances at re-election in November.

What Next Stimulus Check Could Look Like

When you dig into the economic numbers, the economic pain of the pandemic shut down has been uneven. While unemployment may be at highs not seen since the Great Depression, where that unemployment is highest matters. Leisure and hospitality were two of the most hard-hit industries over the last three months:

What A Travel Stimulus Looks Like

This is why you’ve seen some proposals around a $4,000 travel stimulus tax credit. The American Tax Rebate and Incentive Program (TRIP) Act, introduced by Senator Martha McSally (R-AZ), would give a tax credit of $4,000 per adult to use on travel and leisure at least 50 miles from home. It would add an additional $500 per qualifying child.

The problem with that type of tax credit is that only those who have the financial means to travel can use it. It’s also ineffective in the short term because it’s a tax credit, which you’d receive when you file your return next year, and because states are starting to shut down again. It may help in a year, when there may be a vaccine, but it’s not helpful now and will not do anything to stimulate the economy.

What A Broader Stimulus Looks Like

The next stimulus check could be what was passed in the Heroes Act – a broadly distributed $1,200 stimulus check similar to the Cares Act. The income thresholds in the Heroes Act are the same as the Cares Act, which started at $75,000 for single taxpayers and $150,000 for married taxpayers. It also includes $1,200 per child with a maximum of three.

A family of four that earned less than $150,000 would receive a $4,800 check.

The Heroes Act would also fix some of the oversights in the Cares Act. The Cares Act excluded families with one non-citizen spouse from receiving a stimulus check – an omission that was likely an oversight. Senator Marco Rubio (R-FL) just introduced a bill to fix this specific issue. It also would change the Cares Act to include all dependents, not just qualifying children ages 16 and younger.

According to data from the U.S. Census Bureau, we know that many Americans spent much of their first stimulus check on expenses. This was especially true for those who earned less than the median income in America. Close to 60% of households used their check on expenses while households earning less than $50,000 saw that number rise to over 70%. Some politicians pointed to the rapid rise in the Personal Saving Rate as a signal many Americans saved their check but that is not supported by the data.

While some Republicans have said the Heroes Act was not going anywhere, we could see the chamber taking up the debate of the Heroes Act given the new economic realities when it returns after it’s July recess.

What A Back to Work Stimulus Looks Like

A “Back to Work” cash bonus is very popular with Republicans because they want to tie a bonus with getting back to work. Thus far, there have been two proposals related to back to work style bonuses.

The first is a temporary bonus on top of your weekly paycheck. Senator Rob Portman (R-OH) proposed a $450 weekly payment that gets added to your check.

The next is a $600 weekly bonus paid out twice after you return to work. You can think of it as a hiring bonus of $1,200. It was proposed by Representative Kevin Brady (R-TX) in his Reopening America by Supporting Workers Act of 2020.

While these only help those who were previously unemployed, these are far more stimulative than a travel tax credit. The only downside is that it excludes people who are currently working or have worked throughout the pandemic.

While we wait, and as the numbers continue to change, it feels like a stimulus check of some kind is inevitable.

Additional Resources

IRS To Pay Interest On Your ‘Late’ Tax Refund

How Are Americans Really Spending Stimulus Checks?

Chances Of A Second Stimulus Check Just Got A Whole Lot Better

Another Travel Stimulus Proposal: Would You Take A $4,000 Tax Credit Vacation Right Now?

President Trump: Next Stimulus Bill Will Be ‘Very Generous’ And Announced In A ‘Couple Of Weeks’

The Second Stimulus Check Will Not Be A $4,000 Explore America Tax Credit

Will You Get A “Back To Work” Cash Bonus And How Would It Work?

What Could Be In The Next Stimulus Bill’s ‘Menu Of Options?’

How To Find Stimulus Checks Offered By State And Local Governments

What To Do If You Haven’t Received Your Stimulus Check Yet

Beyond Stimulus Checks: 5 Little Known Benefits Of The CARES Act

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