Stimulus packages are a form of fiscal policy that includes government spending and taxation policies to keep the economy running during an economic downturn.Â
The stimulus checks comprise - handing over of cash via direct subsidies, loans, or tax incentives to individuals, companies, industries impacted by the economic crisis.Â
The United States government has used stimulus checks on several occasions. For example, during the 2008 global financial crisis, an individual taxpayer was eligible for a $600 tax rebate ($1,200 for a married couple) who belonged to low and middle-class households.Â
These payments were part of a $152 billion economic stimulus package enacted to stave off the recession.
The money was sent out either sent via direct deposit into the bank account or in the mail as a check or prepaid debit card to eligible individuals whether working, unable to work, unemployed, or retired.Â
COVID-19 Stimulus Checks
Americans have received three rounds of "recovery rebates" or "economic impact" payments as described by the IRS between March 2020 and March 2021 from the U.S. government in response to the COVID-19 pandemic-induced economic hardships.Â
Technically, the payments are an advance tax credit and the money received is not taxable.
First Round of Payments in March 2020
The first round of stimulus checks was authorized under the $2 trillion stimulus package known as Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020.
A one-time check of $1,200 was sent out to eligible individuals with a gross adjusted income of up to $75,000 which was reduced by $5 for every $100 increased from $75,000. The checks phased out for individuals earning $99,000 or more.
Married couples earning up to $150,000 who filed jointly received a $2,400 check which phased out completely at $198,000.Â
Heads of the household, with earning up to $112,500 received $1,200 and phased out at $136,500. In addition, $500 for each child under 17.
The total payments in the first round of stimulus checks were estimated to be $292 billion.
Second Round of Payments in December 2020
The second round of stimulus payments came as part of the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020.Â
The payments totaled $600 per individual or $1,200 for married couples and $600 for each dependent child.
The second round of payments was phased out at the same income level as with the first round of payments.
However, the maximum income levels were slightly reduced: $87,000 for single taxpayers, $174,000 for married couples filing jointly, and $124,500 for taxpayers filing as head of household.
The money was sent to everyone who had received the first round of stimulus checks.Â
The Congressional Budget Office estimated the total cost to be $164 billion.Â
Third Round of Payments in March 2021
The latest and the third round of payments were included in the $1.9 trillion stimulus package, called the American Rescue Plan (ARPA), enacted on March 11, 2021.Â
Eligible individuals received a payment of $1,400, or 2,800 for married couples and an additional $1,400 per eligible child including adult dependents.Â
The payments phased out in increments for single taxpayers earning $75,000 to $80,000, joint filers earning $150,000 to $160,000, and heads of households earning $112,500 to $120,000.Â
Fewer people were eligible in the third round due to the lower income threshold. The eligible dependents received twice the amount they received in previous rounds of relief checks.
The total cost is expected to be $411 billion through 2030.
In the first round, the payments reached 160 million people and 147 million people in the second round.
So far, 163 million third stimulus payments and "plus-up" payments have been sent out since the ARPA Act came into effect.
Social Security beneficiaries who didn't file a 2019 or 2019 tax return including Social Security retirement, survivor, or disability beneficiaries received checks totaling more than $26 billion and were sent out in early April.Â Â
Some lawmakers are pushing for a fourth stimulus check for Americans still struggling financially more than a year later since the first lockdowns.Â
According to the latest data from the U.S. Census Bureau, almost 30% of Americans were unable to cover their household expenses in late March. Housing instability and food insecurity remain the pressing issues for many.Â
With economic fallout still apparent, lawmakers have urged President Joe Biden to include recurring direct payments and automatic unemployment insurance extensions in his long-term economic plan.
The third direct payments have significantly reduced the number of poverty in the U.S. by 11.4 million.
A fourth stimulus relief would alleviate up to 7.3 million people out of poverty in 2021 as per the recent findings by the Urban-Brookings Tax Policy Center.
But it is still not sure if the next stimulus package will include a fourth stimulus check.Â
Labor market and tax experts on the other hand are not expecting another round of checks in the future COVID-19 stimulus package as the economy recovers from the 2020 recession and as the job market improves gradually.Â
It is still possible that a future bill could include direct recurring payments to a specific group of people who are earning below a certain income or those who are out of work and are in dire need of money.
The COVID-19 pandemic and the ensuing lockdown forced many businesses to shut down, resulting in an unprecedented unemployment level of 14.7%Â in the U.S. By April 2020, over 23 million people filed for unemployment.
Many foreign workers in the U.S. had to bear the brunt of the crisis.Â
The release of the stimulus packages by the federal government offered some relief to people. In fact, experts and economists said that the payments boosted remittances from the U.S. to countries such as Mexico, Bangladesh, and others.Â
The migrant workers were able to send a part of their stimulus checks to families back home in their origin countries where their residents are also facing financial hardships due to the global pandemic.
Furthermore, the social distancing norms and the fear of getting infected through physical notes catalyzed the increased use of formal channels and growth in digital remittances during the global pandemic.
In support of the migrants sending money home and people in dire financial need, money transfer providers also waived transfer fees and charges, thus contributing to the surge in remittances especially to developing countries.Â
A stimulus package is considered to be the most effective response during an economic crisis if it is timely, temporary, and targeted.Â
Timely so that there is no drastic drop in output or income during the crisis. On the flip side, to avoid overexpansion and higher inflation when the economy is recovering.Â
Temporary because it is costly in the long run and can be counter-productive such as large budget deficit and reduced economic growth and national income.Â
Lastly, it should first go to households and businesses that are more likely to increase spending in response to the stimulus and raise output in the short run. And to the people who are adversely affected by the downturn.Â
For the stimulus to work, it should be spent and not saved.