/More Stimulus Checks Now More Likely, But Not For Everyone
More Stimulus Checks Now More Likely, But Not For Everyone

More Stimulus Checks Now More Likely, But Not For Everyone

The Senate will likely take up the issue of a further round of economic stimulus in 2 weeks on July 20. A key question is will more stimulus checks be part of it? It seems increasingly likely that stimulus checks may form part of the package after weeks of uncertainty. However, more targeting of those checks also appears likely. $40,000 may be the income limit for another round of checks, down substantially from the last round.
Case For Stimulus Is Clear
There has been little debate that further stimulus is needed for the U.S. economy. Last month an open letter from over 150 economists called for more efforts for stimulate growth. Noting that the Congressional Budget Office (CBO) forecast a $16 trillion output gap and that, “Almost 40 percent of those in households making less than $40,000 a year had lost a job in March.” In fact, there appears to be no major push back on the idea that more stimulus is needed. The debate centers on the form and size of stimulus.
Political Support For Checks
Support for checks , sometimes called Economic Impact Payments, has been uneven. The HEROES Act, which is not yet law, proposed more checks, though was largely a Democrat-supported measure. The White House has been relatively consistent in supporting the idea of more “generous” checks too. However, Republican lawmakers have often favored other means of boosting the U.S. economy, such as focusing on return to work payments, such as Kevin McCarthy’s proposal, or incentives for employers to retain staff.
Income Limits
The next round of checks could be more targeted. As economists have noted, the economic hardships have disproportionately fallen on low-income Americans. Hence stimulus checks too, could be more narrowly targeted that last time. Mitch McConnell said on Monday, “I think the people who have been hit the hardest are people who make about $40,000 a year or less.” He expected to release a draft measure on July 20 that will have further details and hinted that it “could well” include checks. Interestingly McConnell also mentioned the clear pain that the “rim-racked” hospitality sector is feeling, which echoed a prior White House proposal for a tax-credit for travel to support the sector. However, at this point, stimulus checks appear to have broader support.
Market Impact
One reason the markets have held up far better than expected in 2020 has been due to the size and speed of the policy reaction to economic dislocation, both from the Fed in supplying significant liquidity, and from lawmakers in passing measures such as the CARES Act. Therefore, the markets will watch the size and composition of the next stimulus bill closely. More stimulus will likely be viewed as positive news.
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