Understanding Policy: Stimulus Deep Dive

One of the major initiatives for the Biden administration is the passage of a new stimulus package. The goal is to help individuals and businesses impacted by the economic fallout of the COVID pandemic and to stimulate economic growth. Here is a look at the stimulus packages that have been passed so far and at the pending Biden stimulus package.

What’s Been Passed and Distributed so Far?

There have been two rounds of stimulus payments to individuals thus far. The first round of stimulus payments, passed under the CARES Act, sent stimulus checks of $1,200 to individuals, $2,400 to married couples and $500 to parents for each child under the age of 17. The income phaseout started at $75,000 for individuals and totally phased out at $99,000. These levels were doubled for married couples. Distribution of the checks began in early April of 2020.

The second round of stimulus checks went out in January of this year. These checks were smaller at $600 for individuals and $1,200 for married couples.

Other stimulus and COVID relief measures passed and implemented so far include:

Payments on student loans have been suspended until September 30, 2021. Most federal student loan borrowers are automatically eligible for forbearance. Interest payments are automatically waived on federal student loans and collection activities on most delinquent loans have been suspended.

Paycheck Protection Program (PPP) loans for businesses were part of the original CARES Act package. The second round of these loans were limited to businesses with 300 or fewer employees. There is a forgiveness program for these loans that is still being finalized.

Other features of the initial stimulus packages included:

  • Increased unemployment benefits that included gig workers and the self-employed
  • Protections against foreclosures and evictions

What to Expect from Upcoming Stimulus

President Biden appears to be focusing on a stimulus package that offers both economic relief to individual Americans who have been hurt by the pandemic, as well as providing economic stimulus to get the economy moving again.

Overview of the Biden $1.9 Trillion Plan

There are a number of items in President Biden’s $1.9 trillion stimulus package that are still working their way through Congress at this writing. Here are a few items contained in this proposed package:

  • Stimulus checks in the amount of $1,400 per person for those eligible. This would bring those $600 payments up to a total of $2,000 per person.
  • An increase in federal unemployment from $300 per week to $400 per week.
  • Rental assistance for low and moderate income households and an extension of the federal eviction moratorium through September 30.
  • A 15% increase in federal food stamp assistance that is extended through September 30.
  • Additional assistance to childcare providers and an extension of the child tax credit for an additional year.
  • A new grant program separate from the PPP loan program to assist small businesses.

Potential Inflation from Stimulus Packages

There are mixed views among experts as to whether continued economic stimulus programs will result in increased inflation. Many experts think this will not be the case as demand for many products and services remains weak in the wake of the economic fallout from the pandemic.

The prior rounds of stimulus checks helped a number of people purchase essential goods and services, but they did not cause a general spike in demand and did not result in any significant inflation.

An area where some experts do point to inflation from stimulus programs is in asset prices. Some industry experts point to optimism due to the impact of stimulus checks on consumer spending as a contributor to gains in the stock market in the second half of 2020 and so far in 2021.

Another asset that is experiencing inflation is housing. This is due to high demand and low supply in many areas of the country. The stimulus programs may have also contributed to housing price inflation as well.

With both the stock market and the housing boom in some areas, it remains to be seen if this asset inflation will continue once life gets back to normal after the pandemic is under control.

The Future – Janet Yellen

Perhaps the president’s most key cabinet appointment is former Fed Chair Janet Yellen as Treasury Secretary. Ms. Yellen recently commented that she hopes the stimulus package is large so as to promote economic growth.

Secretary Yellen has a vast resume in economics and public service. Unlike the prior Treasury Secretary, she deeply understands the relationship between government actions and the economy and is in a good position to advise President Biden in this area.

Summary

The economic impact of the COVID pandemic on many individuals and businesses has been devastating. The stimulus packages passed to date, plus the Biden stimulus package have been designed to help these individuals and businesses, while providing a boost to the economy. The long-term impact in terms of asset inflation and in other areas remains to be seen.

Connect with a Wedbush Advisor for answers to your questions about the impact of stimulus packages on the economy.


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Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

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