What is a stimulus check?
A stimulus check is a check sent by the United States government to a taxpayer. Incentive checks are designed to stimulate the economy by giving consumers some pocket money. Taxpayers receive this money because it is intended to stimulate consumption and increase revenues at retailers and manufacturers, thereby stimulating the economy.
A stimulus check could be part of a larger federal stimulus package designed to support the economy, as was the case with the stimulus payments that were part of the CARES bill in 2020 and the US bailout in 2021.
Key learning points
- Stimulus checks are checks sent by the United States government to taxpayers to increase their purchasing power and stimulate economic activity.
- Incentive checks are either sent to taxpayers or an equivalent tax credit is applied to their tax returns.
- During the Great Recession of 2008, stimulus controls were used.
- Between March 2020 and March 2021, the US government sent Americans three rounds of stimulus payments to alleviate the economic hardship caused by COVID-19.
Understanding a stimulus check
Stimulus checks have been sent to US taxpayers on several occasions. These checks vary in amount according to the taxpayer’s filing status. Joint taxpayers generally receive twice as much as those who file their returns alone. In some cases, those who had unpaid back taxes saw their incentive checks automatically applied to their outstanding balance.
Research by the National Bureau of Economic Research (NBER) found that the way tax incentives are delivered makes a difference to consumers’ overall spending habits. The implementation of tax incentives by sending checks resulted in an increase in consumer spending. However, applying tax credits equal to the amount of money provided in a stimulus check did not result in an equivalent increase in consumer spending.
Examples of stimulus checks
2008 financial crisis
An example of the use of stimulus checks occurred when the US economy entered a severe recession following the 2008 financial crisis. The incoming Obama administration estimated that sending checks would prevent unemployment from rising above 8%.
The payments were part of the Economic Stimulus Act of 2008, which was enacted during President George W. Bush’s reign. The government sent checks to people with at least $3,000 in qualifying income from, or in conjunction with, Social Security benefits, Veterans Affairs benefits, retirement benefits, and earned income. The checks amounted to:
- Eligible Persons: Between $300 and $600
- Married taxpayers filing joint returns: between $600 and $1,200
- With Eligible Children: Additional $300 for each Eligible Child
In March 2020, the US government passed a bill to send Americans incentive payments to alleviate the economic hardship caused by the coronavirus pandemic. Among other provisions, the CARES Act specified tax credits of $1,200 per adult and $500 per eligible child. The amount of the discount will be phased out for incomes above $75,000 per year for individuals and $150,000 for joint applicants.
The IRS has launched a new Get My Payment portal that allows people to check the status of their payment and provide information about direct deposits.
The second round of $600 incentive checks went out in December 2020. Then, in March 2021, the American Rescue Plan Act was signed. It included direct incentive payments of $1,400 to people making $75,000 or less per year.
Do stimulus programs work to pull the economy out of a downward spiral? 2011 The Washington Post reviewed a series of studies looking at the impact the American Recovery and Reinvestment Act (ARRA) of 2009 had on the economy. From nine studies, they concluded that six of them concluded that “the stimulus had a significant, positive effect on employment and growth, and three that the effect was either quite small or impossible to detect.”
The Congressional Budget Office (CBO) found that the ARRA’s 2011 stimulus created between 1.6 million and 4.6 million jobs, boosted real gross domestic product (GDP) by 1.1% to 3.1%. increased and unemployment had fallen by 0.6 percent. points and 1.8 percentage points.It is important to note that, unlike the Economic Stimulus Act of 2008, the ARRA did not include direct stimulus checks to Americans.
Instead, according to the CBO, the full stimulus package worked through:
Providing funds to states and localities, for example by increasing federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects. Supporting people in need, such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program), and purchasing goods and services, for example by financing construction and other investment activities taking several years to complete; and temporary tax relief for individuals and businesses, such as by increasing the exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating improved business equipment depreciation deductions.
Criticism of stimulus controls and programs
Critics argue that the stimulus added some $1 trillion to the deficit and simply shifted economic activity that would have happened anyway. A study by Mercatus pointed to unemployment rates, which rose even after the stimulus measures were introduced, as evidence that stimulus measures were ineffective during the 2008 recession.
According to the study, the median duration of unemployment peaked at 25.5 weeks in June 2010, after an average of 7.2 weeks from 1967 to 2008. Others, such as US economist Paul Krugman, argued that the amount of stimulus was too high. was small to be effective.