Checks to Americans will ease the coronavirus slump

President Trump’s proposal to send checks to virtually every American adult would probably be a godsend to millions of lower-income households threatened by nationwide shutdowns and social distancing in response to the coronavirus.

The lump-sum payments, the exact size of which has yet to be determined, are a key element in the administration’s latest effort to offset the cascading economic damage triggered by the pandemic.

Treasury Secretary Steven T. Mnuchin has reportedly asked Congress to approve a $1-trillion package that includes $500 billion for direct payments to Americans in two rounds, in early April and a second in May. He has indicated that high-income individuals would not qualify.

On Wednesday, Trump said those figures are under consideration, but added: “We are looking at different numbers.”

An initial payment of $250 billion would translate to about $1,000 per person if every American over 18 got a payment.

“It’s certainly a beginning. It’s necessary. It’s vitally important to put money into pockets of people who are likely to spend it,” said Robert Reich, the former Labor secretary in the Clinton administration and a public policy professor at UC Berkeley. “The more people who have this kind of economic security, the better off all of us would be.”

But it remains to be seen if the proposed payments provide much immediate stimulus to an economy paralyzed by the health crisis.

The federal government has sent checks to Americans before. In 2008, individual taxpayers received up to $600, and married couples up to $1,200, in a $168-billion tax-rebate program by the Bush administration to battle the economic downturn.

Research has shown that such direct payments are spent quickly, especially by households with little savings and wealth, and thus can be effective in giving a short-term lift to the broader economy. This time there’s likely to be less bang for the buck.

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That’s because large portions of the American economy have been shut down, so they’re effectively cut off from greater consumer spending power.

Also, following the advice of public health experts, many Americans are practicing social distancing: They are not going out to mingle in bars and restaurants and shopping malls.

And middle-class and upper-income people would be even more prone to sock away the money.

“You’re not going to make people travel more. You’re not going to make them go to restaurants and things like that. Maybe on the margins, people will do more takeout and do more groceries,” said Marc Goldwein, senior policy director for the nonpartisan Committee for a Responsible Federal Budget.

Harvard economist N. Gregory Mankiw, who served as an advisor to President George W. Bush, endorsed the idea of a $1,000 check to every American. But he said the cash disbursement should be seen as “social insurance” rather than stimulus aimed at boosting demand.

Although wages for lower-income workers have been growing faster in the last couple of years as unemployment has fallen, many of them — and middle-class households also — live paycheck to paycheck.

A Federal Reserve report last year said that 4 out of 10 Americans would have trouble covering a $400 emergency expense.

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Trump had been pushing hard for a payroll tax holiday instead of direct payments, but after a cool reception from lawmakers from both parties, he acknowledged Tuesday that that may not be the best way.

A payroll tax holiday would only help people with jobs, and those who earn more would get a bigger benefit. What’s more, it wouldn’t be a lump sum, but a savings that workers would see with each paycheck.

“It does come over a period of months, many months, and we want to do something faster than that,” Trump said at a White House news briefing Tuesday with the coronavirus task force. “We’re going to do something that gets money to them as quickly as possible.”

Mnuchin, standing at Trump’s side, declined to say whether income restrictions would be applied to the cash payment program. But he said: “I think it’s clear we don’t need to send people who make a million dollars checks.”

The cash distribution plan is part of an overall $1-trillion package that also includes help for small businesses and hard-hit airlines.

Separately, the administration is providing a three-month deferral on income tax payments that would have been due April 15, making an estimated $300 billion of cash available to households and businesses through mid-July.

The idea of sending checks to every American had the backing of some prominent economists, liberal and conservative, and lawmakers, including Sen. Mitt Romney (R-Utah).

“It does seem that these can be effective,” said Randall Kroszner, a former Federal Reserve governor who is a professor at the University of Chicago Booth School of Business.