Economists to Bernie Sanders: Don't kill the relief bill over stimulus checks
Posted December 7, 2020 2:54 p.m. EST
CNN — Washington is nearing a breakthrough on a desperately needed federal relief package that could keep the fragile economic recovery intact. But Senator Bernie Sanders is furious the bipartisan legislation is not expected to include stimulus checks.
Sanders threatened Friday to oppose the yet-to-be-released legislation, arguing it is "wrong morally" and economically not to provide $1,200 payments to working-class families at a time when "hunger in America is exploding."
"The American people need help and they need help now," Sanders wrote in a statement that echoed concerns from other progressives.
Peter Navarro, the White House economic adviser, also expressed displeasure about the lack of stimulus checks. Navarro told Fox Business the $908 billion package is "about two months late and a trillion dollars short."
There's no doubt the $200 billion of stimulus checks sent out by Uncle Sam this spring were crucial, keeping millions of Americans from slipping into poverty. However, some economists told CNN Business they don't think broad stimulus checks make sense right now -- and they warn against scuttling this package over that single issue.
"Don't vote against it. A lot of people need these benefits. Leaving out stimulus checks is a sensible compromise," said Bruce Meyer, an economist at the University of Chicago who studied the impact of the first round of stimulus checks.
Pressure is mounting on Congress to act as red lights flash about the state of the recovery -- and the pandemic intensifies. After surging this summer, the jobs market is rapidly running out of steam. Just 245,000 jobs were added in November, the weakest pace during the pandemic, and economists warn the United States could start shedding jobs before vaccines are widely available.
Stimulus checks might not be that stimulative
The bipartisan package being negotiated in Congress would help because it includes forgivable loans to small businesses, extra funding to state and local governments to help with distributing vaccines and an extension of moratoriums on evictions. Crucially, it would provide $300 per week of enhanced federal unemployment benefits and extend expiring unemployment programs for gig workers and those out of work for more than 26 weeks.
Meyer said these unemployment programs are a more targeted way to help those who are truly in need.
"Those who had their hours cut or lost their jobs are the ones hurting, not the ones who still have their jobs," said Meyer.
The worry is that another round of broad stimulus checks might not be that stimulative.
"People will just save it and not spend it," said Gus Faucher, chief economist at PNC.
Faucher said that more targeted stimulus checks to lower-income Americans could be helpful, though it would also slow the negotiations down.
"The problem is the more complexity you raise, the more difficult it is to get the money out quickly. And to some extent, that defeats the purpose," Faucher said.
David Kelly, chief global strategist at JPMorgan Funds, said the US economy simply "does not need" another broad round of stimulus checks that many Americans would end up saving.
More than 3.3 million Americans kept out of poverty
The $2 trillion CARES Act signed into law by President Donald Trump in March provided stimulus checks to more than 160 million Americans. Individuals making up to $75,000 could receive $1,200 in direct payments, plus $500 per child. (Married couples making up to $150,000 were eligible for $2,400).
The stimulus checks helped boost disposable income and consumer confidence and provided a critical safety net for those most in need.
If not for the stimulus checks, the US poverty rate would have been 1.1 percentage points higher in June, according to research done by Meyer, the University of Chicago economist, along with economists at the University of Notre Dame and Zhejiang University.
That translates to more than 3.3 million Americans who were kept out of poverty, Meyer said. In fact, the poverty rate dropped in the first few months of the pandemic -- despite the millions of people suddenly out of work.
The research found that the stimulus checks had a bigger impact on lowering poverty rates than enhanced unemployment benefits did.
Although poverty has gone up during the pandemic, the blow was cushioned by the CARES Act. The US poverty rate stood at about 11.4% in October, up from 10.8% in January, according to the research.
"It could have been a lot worse," Meyer said. "And it's going to get worse if we don't have another stimulus package."
Stimulus checks would lift the price tag above $1.2 trillion
Sanders did not explain precisely who he thinks should get stimulus checks now, simply saying in his statement these payments should go to "every working class American." (Sanders also opposes the liability shield to corporations that is being discussed in the bill).
A Sanders spokesman told CNN Business that the senator would "likely" support stimulus checks to individuals making less than $120,000 a year. That is the threshold Sanders and others used in May when they introduced a bill providing a monthly $2,000 check during the entire pandemic.
Andrew Yang, the former Democratic presidential candidate, said in a tweet over the weekend it would be a "failure" if Congress passes a package without stimulus payments.
"You know what really helps businesses? Customers with money," Yang said in another tweet. Yang, a CNN political commentator, is a fierce supporter of Universal Basic Income, a controversial plan to give every adult $1,000 a month.
Despite the push from Sanders, Yang and other progressives, aides familiar with the negotiations tell CNN that $1,200 stimulus checks are not going to be included in the stimulus deal. That's because the payments would cost between $300 billion and $500 billion, depending on who would qualify for them, turning a $908 billion relief package into one worth between $1.2 trillion and $1.4 trillion.
If the price tag gets above $1 trillion, it could lose suppose from Republicans, especially deficit hawks who are worried about the amount of debt the United States has racked up during the pandemic. (Of course, the US was already grappling with $1 trillion deficits before the health crisis as a result of spending surges and tax cuts during the Trump era).
Meanwhile, the recovery is faltering and the economy could plunge back into recession if Congress fails to act soon. And that would be especially tragic given that vaccines appear to be on the way.
"The recovery is at risk if we don't get a substantial stimulus bill soon," Faucher said. "The light is there at the end of the tunnel. We can get there. We just need more support."