The problem with the direct payments, according to economists and others critical of the plan, is that much of the stimulus would go to individuals who have not been financially hurt by the Covid-19 pandemic. That means those added dollars may not do much to boost economic activity.
The $1,400 checks would go to most everyone who makes less than $75,000. Taxpayers filing joint returns who earn less than $150,000 would also qualify. Those earning more could qualify for lesser amounts, with a cap of $87,000 for individual tax filers to be eligible.
“That money is not well targeted,” said Mark Zandi, chief economist for Moody’s Analytics.
Zandi said the only economic argument for the checks is that they are a politically feasible way to get a lot of cash into the economy fairly quickly.
“Politics matter, and speed is more important than to get it exactly right,” he said. “But I think it’s the second or third best policy. It’s certainly not the most effective way to help out.”
Many won’t spend it
“The accepted theory of household behavior is that a one-time payment does little to spur additional spending,” said Joel Prakken, Chief US Economist at IHS Markit. “People who do spend it will do so on purchases that aren’t likely to be repeated. It’s getting harder to argue it’ll be an immediate stimulus to the economy.”
A big part of the challenge with maintaining consumer spending during the pandemic has been that many of the goods and services people spend money on in “normal” times aren’t available because of the crisis.
Although Summers has been a supporter of direct payments in the past, he is skeptical that the proposal will be effective this time. “I’m not even sure I’m that enthusiastic about the $600 checks,” he said. “And I think taking them to $2,000 would be a pretty serious mistake.”
There is a chance that Biden’s proposal for the additional $1,400 payments won’t be approved.
Go to the news source: Stimulus checks are a lousy way to fix the economy