The federal administration was forced to call a halt to the successive stimulus checks that helped people during the severe economic downturn triggered by the pandemic. The direct economic stimulus payments started right after the country went into a total lockdown in the first quarter of 2020 and was followed by two more rounds in a space of one year. But stiff opposition to the payments by the opposition Republicans and the allegation that it fuelled inflation has put a stop to the payments.
The record inflation that the nation has faced in recent months started in the third quarter of 2021 and crept up relentlessly to reach 9.1% in June 2022, the highest since November 1981. Conservative economists have cited several reasons for the record increase in the price of gasoline, essential goods, utilities, and home rent in the US.
Politics Has Played A Major Role In Blaming Stimulus Checks For Inflation
Relentless Republican attack has been concentrated on the third stimulus check under the American Rescue Plan Act signed by President Biden in March 2021 immediately after coming to power. The coming midterms have turned it into an election issue for the GOP.
But the Rescue Plan, or ARPA, has been an unavoidable factor in the rise of inflation, and multiple issues led to the present situation. But it was never the primary cause of inflation and there has been the pandemic and the immediate recession, the supply issues that have yet to right themselves, and the war in Europe.
Both sides have sought to oversimplify the issue. And ultimately it is hard to disentangle all of the elements that have finally led to the present mess. In June alone, the Republicans sent out close to 80 electronic media ads that focused on inflation.
The Republicans have concentrated on the massive deficit spending for the rise in gas and grocery prices. It has been said that the highest inflation in 4 decades has been the result of liberal spending and triggered by a massive surge in federal spending.
For the Republicans, the topic of the stimulus checks and their link to inflation has been the trending topic and has become a recurrent theme.
Unfair To Ignore The Benefits Of ARPA
But both the political entities have tried to oversimplify the issue, a given in any election year. But it is undeniable that the stimulus checks that landed in the post boxes and bank accounts of millions across the country during the height of the pandemic helped lift close to 4M children out of poverty. And recessions are part of any economic cycle, more so during an unprecedented emergency as the pandemic.
The US has faced 13 recessions since WW II, with an average length of 10 months. And the economy has invariably bounced back stronger and bigger after each setback.
But it is undeniably tough riding out a recession, with the constant shortage of money and the worry of holding down a job. This is one major factor that prompted the government to send stimulus checks both in 2001 and 2008 after the recessions. And the main difference between those payments and the funds given out during and after the present pandemic is that families and individuals received multiple stimulus checks, along with a host of other support measures.
Economists concede that the Rescue Plan, the $1.9T pandemic relief package that included the Economic Impact Payment, or the third stimulus check, worth $1,400, helped millions of Americans even as the economic situation remained grim after the pandemic. The Plan expanded unemployment benefits to September 6, 2021, and set aside money for education, small businesses, and all other business sectors affected by the downturn.
States, local and tribal bodies also benefitted from the largesse. It was the only way then to avoid the inevitable recession that hit the US after previous slumps. Economists say that it may have contributed between 2.5% and 3% to inflation, not to the extent as alleged by the Republicans.
And leading economists such as Mark Zandi of Moody’s have gone on record to say that the impact of stimulus measures has mostly disappeared and should not be considered too strong a factor behind the present situation.
And the ARPA was only a part of the total stimulus support. The other two pandemic stimulus measures enacted under Donald Trump were worth a total of $3.1T when compared to the $1.9T of the ARPA.
The concern of all the relief measures was primarily on bringing immediate relief to millions of beleaguered Americans and jump-starting the faltering economy.
Republican States Too Line Up Stimulus Checks For Residents
More states have joined the bandwagon to offer stimulus checks to embattled residents in the absence of any further stimulus check support. While the Republicans have railed against the third stimulus check and the American Rescue Plan Act signed by President Biden, they have been quick to utilize the money for giving stimulus checks to residents in some cases.
But it has also been used for unintended purposes by Republican Governors, like securing a pause on state fuel taxes. These violations have led to skirmishes between the GOP and the White House over how states should spend the generous federal stimulus funds. They have used these funds for unrelated purposes such as paying for tax cuts, thus siphoning off aid that might otherwise have helped states fight the pandemic, prepare for a further recession and shore up local economies.
In effect, the American Rescue Plan delivered a blank check for every state and city that helped bolster their budgets. But there were a few conditions, and chief among them was that the money would not go toward subsidizing state tax cuts. This would lead to major budget gaps once the aid from the federal government ran dry.
Since the Act was passed, around 21 states have tried to overturn this policy, aided by Commerce Chambers with vested interests to reduce their tax bills. And unfortunately, these legal measures have prevailed and have hamstrung the Treasury Department further.
Thus, while Republicans have railed against the stimulus checks and allied support measures, they have used the funds to further their interests. In that way, they have been as complicit in furthering high inflation as the Democrats, whom they blame for the mess.
