Will A Second Stimulus Package Help or Hurt the Economy?

By Diego Perez and Tom Ackerman

Jesus Hernandez, a CT scan technologist in Chicago, saw the financial effects of COVID-19 when his $1,200 stimulus check did not directly benefit him, but rather it benefitted someone else.

“Since I was working, I was able to lend my money to someone else who was not working at that time. I was able to let them borrow the stimulus check and help them pay bills,” said Hernandez, who gave his son-in-law the stimulus check. He has since been paid back.

While Congress is still debating the possibility of a second stimulus check for those impacted by the pandemic, Hernandez said he would spend a second check on bills or again help others who are out of a job.

Stimulus checks were part of the CARES Act that provided aid to American workers, families, and small businesses. The CARES Act was passed by Congress and signed into law by President Trump on March 27 with over $2 trillion in relief, as a pandemic stricken economy dipped into recession. Talks have stalled as the White House and Congress have yet to compromise on a second stimulus package.

Individuals who filed taxes in 2019 and earned less than $75,000 were eligible to receive $1,200 plus an additional $500 per child under the age of 17. Married couples who filed jointly and made under $150,000 received $2,400. If an individual filed more than $75,000, the amount they received then decreased about $5 dollars for every $100 dollars more that was claimed. Those who earned more than $99,000 or couples who earned more than $198,000 jointly did not receive checks.

Kiara Dominguez, 27, a nurse, eagerly anticipated moving from Connecticut to California upon her graduation from Bridgeport University to start a new chapter in her life. She had successfully tested to transfer her nursing license across the two states and was waiting for the approximate eight to 12 weeks since July, while working in Connecticut.

During this time, Dominguez totaled her vehicle in a collision and was also jobless for a time before finding other temporary work, due to shifts in demands from the Coronavirus. She bought a vehicle with her stimulus check in addition to her savings.

“I don’t think the check exactly evened it out because I was living on it for a few months and I get paid pretty well as a nurse, but it definitely helped me get to a point quicker to get my car because I was having trouble getting back and forth from work and to school,” she said.

Dominguez was also then able to visit and stay with a friend in Denver as she awaited for the license to validate, starting in October. The two planned to search for apartments for her while she continued to apply for work in California. However, while waiting, officials told her in November that none of her information had been processed and it would need to be re-sent. She understood the pandemic to have delayed the licensure.

Now, Dominguez is returning home to live with her folks, but she is hoping to make the move West as logistics and finances allow.

However, it became apparent to Dominguez that the usual three-month wait for licensure would be extended by several months. She was able to study remotely and live off of the stimulus and unemployment aid, along with her savings.

Along with the stimulus check, the program offered extra unemployment benefits for those who filed for unemployment. These extra benefits are set to expire December 26th unless additional legislation is passed. It is projected that almost 12 million Americans will lose the additional aid.

According to an analysis by the Economic Policy Institute (EPI), in Dec. 2019, the unemployment rate was 3.5%.When the pandemic began to spread exponentially, the unemployment rate skyrocketed.

The unemployment rate in March 2020 was 4.4%, according to the Bureau of Labor Statistics. A month later, April showed an unemployment rate of 14.7%, which is among the highest in documented U.S. history. It is estimated that unemployment rose to 24.9% during the Great Depression (1929–1939), although official government data was not being recorded until 1948. Unemployment in October stood at 6.9% nationally and 7.8% in Chicago.

Jacob Robbins is an Assistant Professor of Economics at the University of Illinois at Chicago who studies macroeconomics, monetary economics, and inequality. Robbins has been studying the real time effects of consumer spending during this COVID-19 pandemic.

“The biggest effect of this stimulus is surprisingly the boosted total incomes in the U.S. — even during the heart of the pandemic,” Robbins said. “I just showed you these charts showing unemployment is at a record high and [consumer] spending is at a record low, but you would think that if people are unemployed, people are losing their incomes. But crazily, personal income grew even in April and May.”

Robbins added that states are experiencing financial burden because their tax revenue is largely based on property taxes or sales taxes, which are way down due to this pandemic-induced recession.

April showed the lowest consumer spending month this year. Since millions were unemployed and many businesses closed temporarily or permanently, the economy was in a recession-like state. Many could not afford to pay rent, bills, or buy food. According to MarketWatch, spending increased 0.5 percent in October.

At the height of the pandemic, consumers began to buy some goods in bulk that left stores with many empty shelves. According to research by J.P. Morgan, many people started to “panic buy” products such as household cleaners, disinfectants, soap, hand sanitizers, and toilet paper. Lysol sales in the U.S. surged by over 100% in the first three months of the year, according to the J.P. Morgan research and per the Lysol owner Reckitt Benckiser.

When the stimulus checks began to arrive, overall consumer spending also began to slowly rise. Many did not and could not leave their homes except for essential services due to local government restrictions. This caused a rise in consumer spending, especially with the extra help from the stimulus checks.

“Especially in the early days of COVID-19, there were very dramatic changes in consumer spending. The fall in consumer spending that we saw during the pandemic (from April), which is the redline, completely dwarfs the change in spending that we’ve seen in other recessions,” Robbins said.

He compared the pandemic to a natural disaster in that there was a brief period of time showing massive spending declines that then recovers quickly. “So spending has pretty much recovered — at least for retail goods,” he added.

In efforts to further revive a struggling economy, President Trump in August signed a payroll tax deferral executive order to help provide a financial boost to struggling Americans. The payroll tax deferral took effect on the first of September and expires at the end of the year. The payroll tax deferral would enable employers to defer collection of the 6.2 percent tax that employees pay toward Social Security.

In comparison, The 2008 Recession and the recession-like state of the economy this year have some odd similarities. While the recession of 2008 was not caused by a pandemic, many also struggled. The 2008 Recession began towards the end of 2007 and did not end until around the summer of 2009.

Towards the end of President Bush’s presidency, he signed the Economic Stimulus Act of 2008 in order to prevent a looming recession. The package signed by Bush eliminated taxes on the first $6,000 of taxable income for individuals and the first $12,000 of income for couples. A stimulus rebate check was mailed to about 130 million taxpayers which included up to $600 for individuals and married couples received up to $1,200 plus $300 per dependent child.

A year later, President Barack Obama signed the American Recovery and Reinvestment Act (ARRA) which enacted tax cuts for individuals and families, tax credits, and extended unemployment benefits ending the recession.

The outlier between ARRA and the CARES Act is the impact of the COVID-19 virus.

While Robbins suggests that the first round of stimulus checks did, in fact, boost overall income and increased consumer spending in retail goods, Robbins is unsure whether a second stimulus check with more money would dramatically help the economy.

“I think it would help, yes. I don’t know if it would be a super boost,” Robbins said. “I think good policy is going to make sure that people are going to be able to meet their normal household expenses, and that they won’t miss rent payments, have to move, or even become homeless; that they’ll be able to afford food and keep their household balance sheets afloat.”

As COVID-19 continues to spread across the United States, the state of the economy is in question as some states and cities revert back to stay-at-home orders as well as restrictions. More individuals will be unemployed as small businesses are forced to close resulting in more unemployment claims. Some are hopeful for a second stimulus check or some form of relief as President-elect Joe Biden is less than two months away from taking office with the task of recovering a struggling economy.

“I don’t think the economy is ever going to go back to normal until the virus is under control, so the way that I think about these stimulus programs is basically like bailing out water from a boat until you can fix the hole in the boat. The hole in the boat is the virus. Bailing out the water is the stimulus checks,” Robbins said.

UIC senior based in Chicagoland