Stimulus check or unemployment boost? What’s the best way to support coronavirus economy?
WASHINGTON — The best way the government can help the millions of people out of work right away? Keep giving them that extra $600 a week, or at least some emergency payment, as unemployment benefits.
That's the loose consensus of economists and many Washington lawmakers contacted by McClatchy, as President Donald Trump and Congress engage in tense closeddoor negotiations on the next federal economic relief package.
Trump wants a payroll tax cut. Senate Majority Leader Mitch McConnell is a booster of sending stimulus checks to low and moderate income consumers. Democrats are eager to continue the $600 benefit, which ends next week, and many Republicans appear willing to at least continue some partial payment.
All of these economic salves have been tried over the years during tough times, and all have found measures of both success and shortcomings.
But this economic downturn is different from any in modern times. It's a recession stoked not only by the usual consumer skittishness about spending during hard times, but by fear of disease should one even try to shop, eat out or even leave the home.
Kathryn Edwards, associate economist at the nonpartisan RAND Corp., summed up what is an unofficial view among many economists and lawmakers.
"We aren't spending because many avenues for spending are not healthy," she said. "It's not a matter of getting households money so that they can jump start consumer spending. That money doesn't have many places to go. Instead, we are trying to stave off a depression and control a highly contagious and deadly virus."
Consumers need economic stability, and Edwards found "The best way to do that is to target aid to the 30 million people out of a job and the businesses that cannot safely open."
Michele Evermore, senior policy analyst at the National Employment Law Project, also found the government's biggest boost could be to help those out of work quickly.
"Definitely the $600 in unemployment insurance is the best bang for the buck — it goes straight to people without earnings so it all gets spent," Evermore said.
She's no fan of a payroll tax cut, concerned it undermines the Social Security trust fund.
And "the stimulus check is fine, I suppose, but it goes to people whose income is stable," Evermore said. Trump administration officials and congressional leaders have been huddled all week trying to figure out what might work in an economy where unemployment has hit its highest level since World
War II. California's jobless rate last month was 14.9%,a drop from the 16.4% of April and May.
What will make a difference? These are the arguments Washington lawmakers are hearing as they struggle to find answers.
Extend the $600 benefit
PRO: Unemployment benefits historically were designed so that people would have enough money to live comfortably but not receive so much in payments that they wouldn't seek work.
The $600, part of unemployment benefits since March, came because of extraordinary circumstances. "Staying home and staying healthy" was a key goal, said Rep. Derek Kilmer, D-Washington, chairman of the House's moderate, 104-member New Democrat Coalition. The benefit is scheduled to end next week.
Any government aid has two goals, said Jesse Rothstein, faculty director at the California Policy Lab at Berkeley: To keep families from "going under economically due to nothing more than being in the wrong place at the wrong time (such as in the hospitality industry) and to support consumption.
"Both of those call for targeting the money as much as we can to people whose incomes have taken a big hit, rather than to people who haven't been directly affected to date," he said.
CON: Many people can have bigger incomes staying home than looking for work.
"We need to absolutely end the $600. It was never meant to pay more than people would earn," said Rachel Greszler, research fellow in economics at the conservative Heritage Foundation.
She, along with many Republicans in Congress, would replace it with a smaller benefit. Greszler suggested having Washington add about 40% to a state benefit.
Cut the payroll tax
PRO: Trump has been pushing for some time for a cut in the tax. Employees and employers each pay 6.2% for Social Security until their income reaches $137,700, and 1.45% in most cases for Medicare. The highest earners pay another 0.9% in Medicare tax.
Supporters say that a cut would immediately provide extra money — and thus spur extra spending — for consumers.
A 2% cut would save someone earning $137,700 a total of $2,754 a year. A person earning $40,000 would get $800.
The cut has been politically popular because it can be lauded as not only a tax cut, but a significant one since about 70% of wage earners pay more in payroll taxes than income taxes.
CON: To pay the tax, you have to be earning an income.."It's not going to reach people who are out of work or are receiving disability," said Chye-Ching Huang, senior director of economic policy at the Center for Budget and Policy Priorities, a progressive Washington research group. And, noted Sanjay Varshney, professor of finance at California State University, Sacramento, "A payroll tax cut does not do anything for the self employed — perhaps the hardest hit part of the labor force."
The tax temporarily was cut 2 percentage points in 2011-12, as the nation came out of its worst recession since the Great Depression of the 1930s. It arguably did little to help business.
The nonpartisan National Bureau of Economic Research found that 35% said it affected their spending habits. The rest said they either saved the money or used it to pay down debt.
Send out new stimulus checks
PRO: "I think it's pretty clear the checks actually have a more direct benefit to the economy.," said Senate Majority Whip John Thune, a South Dakota Republican. "I think consumers are more likely to spend a check they get in the mail."
Earlier this year, the government began sending payment of up to $1,200 per adult for people whose income was less than $99,000, or below $198,000 for joint filers, as well as $500 per child under 17.
CON: The money doesn't often reach many who need it most. While nearly 70% of adults received payments, "There were significant disparities by income, race/ethnicity, and family citizenship status in payment receipt," said a study by the nonpartisan Tax Policy Center's Janet Holtzblatt and Michael Karpman.
"If someone who remains stably employed receives a one-time stimulus, much of it is likely to just go into their bank account," said Rothstein.