The multiple rounds of stimulus checks were a lifeline for many and worked at multiple levels in saving low and moderate-earning Americans, while also saving the US economy from a deep recession that could have lasted for months. The third round was particularly a big all-around boost, both for families, and also businesses, local and state bodies, medical and educational institutions, and other organizations.
While the direct transfer of money to families and individuals put more money in the pockets of Americans, it also helped businesses to remain open during the pandemic and continue paying their employees. This ensured that businesses did not shut down during the lean months of the pandemic and continued to employ people, pay their wages, and continued mostly uninterrupted despite the pandemic.
And when the economy opened after a brief recession that lasted a quarter, it did not take much time for it to recover unlike in the past, when the economic downturn during a recession was followed by a prolonged recovery process that increased the agony of the people.
Stimulus Checks And Inflation
Even as the American economy gradually recovers from the pandemic, prices continue to rise across the board. Inflation has torn to shreds the plans of the federal administration to keep it down to below 2% in 2021. It reached a record high in June, touching 9.1%, the highest after November 1981. And Republicans have jumped at that opportunity and have turned it into a political talking point even as the midterms draw near. They have tried to pin the blame, particularly on the third stimulus check under the American Rescue Plan Act, signed by President Biden in March 2021, immediately after he came to power.
In the process, they have deliberately sought to distort the economic landscape. They have sought to project that inflation has run rampant due to what they termed as ‘out-of-control spending’ by President Biden.
They have said that the wasteful and reckless spending by the Democrats was to blame for the skyrocketing inflation. For them, the widespread inflation was a result of ‘reckless’ spending and tax policies.
Conservative economists have cried out in chorus with the Republicans, maintaining that the stimulus packages passed in response to the pandemic were having a deep impact on inflation. But they have misleadingly suggested that it is the only explanation for the recent spike.
They deliberately pin the issue down to the ARPA and the third stimulus checks and ignore that more has been spent in 2020 by the Republicans and signed by then President Donald Trump. While the ARPA was a $1.9T package, the earlier rounds passed in 2020 totaled $3.1T. it contributed to inflation. But it is misleading to suggest that it was the only, or even the major, cause.
Inflationary pressure arose from multiple factors. The major was the supply chain issues when the whole industrial system ground to a halt during the pandemic. Businesses shut down, workers preferred to stay at home, or fell sick in large numbers. Disruption in any one sector or production process meant that total production slowed down, especially in the case of complex products like vehicles.
The war in Europe led to a spike in oil prices as Russia is the third largest producer.
But economists say one of the biggest factors was the cost of restarting the was the biggest reason that contributed to inflation at the present rate.
In comparison, the tax credit was relatively small compared to the economy taken as a whole. Other countries, including the developed nations of the European Union and the UK, are also discovering for over a year now. And they have not issued any stimulus checks to their citizens.
The demand and supply mismatch was the biggest reason. In that way, the stimulus check could take part of the blame. The successive stimulus check helped people pay for their everyday expenses including putting food on the table, stocking up on essentials, paying their credit dues and rent, and even saving a part of the checks in the process.
This also led to a change in consumer patterns with people spending more on goods than services. There was a sudden spike in demand for goods other than essentials even as production took a nosedive. This led to a severe shortage of supply in the face of increasing demands.
Prices naturally shot up, a part of every inflationary cycle. The US has faced recessions over the years and has already seen 13 of them after WW II. And it has recovered with a bang each time. The pandemic recession was the shortest on record, lasting a mere three months. Thanks to the stimulus checks, the economy managed to stay afloat and recovered quickly once the initial phase of the pandemic passed.
The Cessation Of The Child Tax Credit Hurt Families With Children
One of the biggest beneficiaries of the ARPA was families with children. The expanded Child Tax Credit stimulus check almost doubled the normal child support that parents received. The size was increased, it was made refundable, it was also made independent of the federal tax liability, and people could now receive 50% of their estimated CTC before the tax year ended.
They received it between July and December 2021 for the tax year 2021, when normally it was adjusted against income tax returns filed in 2022.
The expanded CTC stimulus check increased the amount that families received, especially in the low and moderate-income groups. They go an additional check of up to $600 for each child. Families also for the first time received this stimulus check regardless of whether there were regular federal income tax filers. This was especially vital for rural, and Black and Latino families.
Many low-income families do not have a federal tax liability, especially during the year they are raising children, though they are liable to pay other taxes including payroll tax, and local and state taxes.
People used the CTC stimulus checks for their children’s food and education, and also to pay off debts incurred in raising the child. It proved to be a crucial lifeline for millions of families.
