The draft legislation would provide minimum payments of $600, and aid would be phased down at adjusted gross income thresholds of $75,000 for individuals and $150,000 per couple. Additionally, there would be $500 payments for each child.
The rebate amount is slated to then be reduced by $5 for each $100 a taxpayer’s income exceeds the legislation’s threshold. The amount is therefore reduced to zero for single taxpayers with incomes exceeding $99,000 and $198,000 for joint filers.
The IRS would determine income based on taxpayers’ 2018 tax returns, or 2019 tax returns in cases where there is no 2018 return.
Answers to Common Questions About The Emergency Stimulus:
Why is such a massive stimulus necessary?
- The global economy has ground to an immediate halt, layoffs have already begun, and growth will continue to slow in the coming weeks until we begin to see promising statistics on the number of new infections and progress in the development of a vaccine, a drug that aids in recovering from the virus, or a cure.
- In an economic crisis – particularly one on a global scale, a retraction in the economy is immediate whereas a recovery takes time. A recession is inevitable at this point and is likely to continue for several months. The purpose of the stimulus is to provide financial aid to those who lost their primary source of income and encourage consumers to spend money in an effort to stave off a depression.
How Will the Proposed Bailout work?
- $1,200 per person if you make $75K or less, $2,400 per couple if you make $150K or less. You also get $500 per child. For every $100 you’re above the income thresholds, they reduce the amount by $5. Therefore, if you’re a couple making $151K and have two children, you will receive a check for $3,300 dollars.
- Your check will be calculated based on your 2018 tax return or 2019 tax return when a 2018 tax return is unavailable.
What If I Made Less Money in 2019 Than 2018?
- Unclear at this time; however, some financial experts have suggested a credit for the difference on your 2019 tax return. Conversely, you could receive the additional amount for which you are eligible after filing your 2019 return.
Where Will We Get The Money?
- The Treasury will print treasury bonds, which will be purchased by the Federal Reserve, which is the digital equivalent of printing actual cash. The money will add to the total of the National Debt; however, President Trump has called for the Federal Reserve to provide the funds for the stimulus bill through the purchase of 50-year bonds. Interest rates are at all-time lows, meaning the impact on our national debt will be minimal compared to debt financed through 1, 5, or 10-year bonds.
- With regard to the stimulus checks sent to individual tax-payers, there is speculation that the Treasury could potentially print cash rather than issue debt through Treasury Bills. The purpose of this would be to ensure that the banking system has enough liquidity (cash on hand) to issue U.S. dollars to taxpayers who receive a stimulus check. In such a scenario, the cash would simply add to the money supply or currency in circulation, but not the National Debt.
- Again this scenario is merely speculation until additional details of the stimulus bill are made clear.
Won’t That Cause Massive Inflation?
- In a healthy economy, yes. However, the unique circumstances of the economic crisis and the pace at which the government injects money into the economy will offset that risk. The biggest risk to the economy at present is DEFLATION. If inflation were to occur during the economic crisis, it is more likely that we would enter a period of STAGFLATION, in which the cost of goods and services rise while the economy contracts. Inflation can be offset by raising interest rates or increasing the reserve requirements for banks, which decreases the amount of money in circulation.
How long do Washington Lawmakers have to argue over the details?
- A few days at most. Think of it in terms of a medical emergency. If you’re having a heart attack, you only have a few moments at most to decide which hospital you’re going to. If the U.S. economy were a person, it would be in critical condition.
What About The Long-Term Impact on the National Debt?
- Impact would likely be minimal if the debt is created through the issuance of 50-year bonds due to current interest rates, which are at record lows.
- When examining the National Debt, we must consider our country’s Debt-to-GDP (Gross Domestic Product) ratio rather than the actual size of the National Debt alone. Our current debt-to-GDP ration is roughly 107%. For comparison, the country’s debt-to-GDP ratio reached 119% in 1946 during World War 2, then dropped to 105% in 1947 and 93% in 1948. Surprisingly, this decline occurred during a recession.
A Lot of People Have Been Hearing the Term “Helicopter Money.” What is Helicopter Money?
- Helicopter Money is a theory of unconventional monetary policy in which central banks make payments directly to individuals.
- The phrase “helicopter money” was first coined by Milton Friedman in 1969, when he wrote a parable of dropping money from a helicopter to illustrate the effects of monetary expansion. The concept was revived in November 2002 when Ben Bernanke, then Federal Reserve Board governor, and later chairman suggested that helicopter money could always be used as a means to create inflation and prevent another economic depression like the one the country experienced in the 1930s.
Which Americans Should be Getting Checks? Why Should People Who Still Have Employment Get Checks?
- The logic behind sending Americans checks regardless of employment status is to normalize spending behavior. People who are still employed might fear they’re about to get laid off. Thus, they save as much of their money as possible and only spend it on absolute necessities. This worsens and prolongs the recession, thus increasing the likelihood that you WILL eventually be laid off.
- Think of your check from the government as a shovel. Your job is to shovel the money into the economy to aid in preventing an economic depression.
What About People Who Say, “I don’t need a check, I’m sending mine back or tearing it up.”
- By doing so, you limit the amount of new money entering the struggling economy, thus contributing to the recession rather than the recovery. In other words, what you’re unwittingly saying is, “Great Recession 2.0? That sounds bitchin! Bring it on!”
- The point of the stimulus is to spur economic growth and keep the economy from sinking into a depression. Again, think of your check as the government sending you a shovel. Your job is to shovel the money into the economy by patronizing local businesses and paying your regular bills. Many hands make light work. When you refuse your check, you’re making the recession worse and creating more work for the government and your fellow citizens.
- If you don’t want to accept your check out of principle, you have an option to aid the recovery while maintaining your conservative principles: Spend your stimulus check to support local businesses during the recession. Then, once the economy has fully recovered and expanding, write a check to the Treasury for the equivalent amount of your stimulus check. You’ll be helping the economy during the recession and helping to lower the National Debt when the economy recovers.
WIBC’s Brian Baker worked in the financial industry for six years as the host of a daily financial radio show that aired on more than 200 radio stations across the country. He’s interviewed some of the most high-profile and successful economists and investors in the world, including Jim Rickards, an expert on monetary policy, and legendary investors such as Jim Rogers, co-founder of the Quantum Fund. Brian’s also one of those freaks who finds the subject of economics absolutely fascinating.