Fact Check: Will a Check From the Government Stimulate the Economy?

Fact Check: Will a Check from the Government Stimulate the Economy?

(RightWing.org) – Earlier this week, we told you that Sen. Mitt Romney (R-UT) was backing a plan to provide every American with a $1,000 cash payment from the US government.

On Tuesday, Treasury Secretary Steven Mnuchin said the administration could ask for as much as $250 billion to go towards direct payments of cash to Americans.

It’s not the first time government cash payments have been given to Americans to stimulate the economy in hopes of preventing a recession. The most recent was in 2008, after the collapse of the housing market that marked the beginning of the Great Recession.

The question is, if the federal government invests $250 billion giving out money to Americans in times of need thanks to the coronavirus outbreak, will it have the desired effect?

TEST

Highlights

US government stimulus packages have been tried dating back to Presidents Hoover and Franklin Roosevelt during the Great Depression of the 1930s. Their goal was to restore growth and prosperity by dramatically increasing government spending and budget deficits. The result was a long protracted Great Depression. The economy was ultimately saved by increased government spending in World War II as men, women, and young adults went to work as part of the war effort.

In 2001, President George W. Bush got Congress to pass tax cuts that included tax rebates. Many households received $300 or $600 checks from the US Treasury.

In 2008, Bush worked with Congress to pass The Economic Stimulus Act of 2008 at a cost of $168 billion. The bill eliminated taxes on the first $6,000 of taxable income for individuals and $12,000 for married couples.

Additionally, 130 million taxpayers received a stimulus rebate check that equaled $600 for individuals, $1,200 for married couples, and $300 per dependent child. In total, the stimulus program equaled approximately 1% of the gross domestic product (GDP). Many economists at the time believed the tax rebate checks would have an immediate impact on consumer spending.

TEST

While the money was certainly welcomed by many, the question is did it work to help the economy recover and grow?

Did people start spending more money and did it help prevent a recession?

In 2009, President-elect Barack Obama said, “Only government can provide the short-term boost necessary to lift us from a recession.”

Was he right?

TEST

Comparing Past Stimulus Packages

Here are some facts about the 2001 and 2008 stimulus plans that provided money to taxpayers:

  • In 2001, only 22% of households who received a rebate spent it. Many used it for more practical purposes. They either saved it or paid off debts.
  • The majority of those who spent the money were low income or wealthy individuals with low liquidity.
  • Between 20% and 40% of rebate money was spent on non-durable goods during the three months after rebates were received and 33% in the subsequent three months.
  • In 2008, Federal spending exploded at a rate of 50%, from $2 trillion to $3 trillion in Bush’s 8 years in office.
  • Under Obama, the economy experienced the weakest economic recovery from a recession in history.
  • In Obama’s first 10 months and not long after the 2008 stimulus, unemployment jumped to 10% and stayed above 9%.
  • Nearly 8 years after the stimulus, 95 million Americans were not in the labor workforce due to slow job growth over that period.
  • Under Obama, food stamp recipients increased 33%, homeownership declined 3.8 points.

While the stimulus programs initially helped those it was meant to help, it’s debatable that it came at a cost to the overall economy and the long-term national debt. The 2001 tax rebate program was a success. However, the two biggest stimulus programs in US history under Hoover/FDR and Bush/Obama helped extend the Great Depression and Great Recession as evidenced by the trends.

Will It Really Work Now?

Will a $1,000 per person stimulate the economy in 2020? Perhaps not long-term. However, in the immediacy of short-term pain, it may be some condolence to those who really need it while giving just enough boost to help the economy.

Only time will tell if it works or not. After all, the circumstances in 2020 are very different from those in the past.

By Don Purdum, Freelance Contributor

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