What Is a Stimulus Check?
A stimulus check is a check sent to a taxpayer by the U.S. government. Stimulus checks are intended to stimulate the economy by providing consumers with some spending money. When taxpayers spend this money, it boosts consumption and drives revenues at retailers and manufacturers and thus spurs the economy.
- Stimulus checks are checks sent by the U.S. government to taxpayers to boost their spending power and spur economic activity.
- Stimulus checks are either mailed to taxpayers or an equivalent tax credit is applied to their tax filing.
- Stimulus checks were used during the Great Recession of 2008.
- In March 2020, the U.S. government enacted a bill that sent Americans stimulus payments to provide relief for economic hardships caused by the coronavirus pandemic.
Understanding a Stimulus Check
Stimulus checks have been mailed out to U.S. taxpayers on several occasions. These checks vary in amount according to the taxpayer's filing status. Joint taxpayers generally receive twice as much as those filing singly. In some instances, those who had unpaid back taxes saw their stimulus checks automatically applied to their outstanding balance.
Research posted on the National Bureau of Economic Research (NBER) found that the means of delivery of fiscal stimulus makes a difference to the overall spending patterns of consumers. Implementing fiscal stimulus by sending checks resulted in an increase in consumer spending activity. However, applying tax credits equal to the amount of money provided in a stimulus check did not result in an equivalent increase in consumer spending activity.
Examples of Stimulus Checks
Financial Crisis of 2008
One example of the use of stimulus checks occurred when the U.S. economy entered a severe recession after the financial crisis of 2008. The incoming Obama administration estimated that sending out checks would prevent unemployment rates from going beyond 8%.
The payments were part of the Economic Stimulus Act of 2008, which was enacted during the administration of President George W. Bush. The government sent out checks to those with at least $3,000 in qualifying income from, or in combination with, Social Security benefits, Veterans Affairs benefits, Railroad Retirement benefits, and earned income. The checks amounted to:
- Eligible individuals: between $300 and $600
- Married taxpayers filing joint returns: between $600 and $1,200
- With eligible children: an additional $300 for each qualifying child
In March 2020, the U.S. government approved a bill to send Americans stimulus payments to provide relief for economic hardships caused by the coronavirus pandemic. Among other provisions, the CARES Act specified tax rebates of $1,200 per adult and $500 per qualifying child. The amount of the rebate phases out for incomes above $75,000 per year for individuals and $150,000 for joint filers.
The IRS launched a new Get My Payment portal that allows people to check the status of their payment and provide direct deposit information.
Do stimulus programs work to help pull the economy out of a tailspin? In 2011, The Washington Post reviewed a series of studies that looked at the impact the American Recovery and Reinvestment Act (ARRA) of 2009 had on the economy. Out of nine studies, they found that six of them concluded that "the stimulus had a significant, positive effect on employment and growth, and three find that the effect was either quite small or impossible to detect."
The Congressional Budget Office (CBO) found that the stimulus provided by the ARRA had by 2011 created between 1.6 million and 4.6 million jobs, increased real gross domestic product (GDP) by between 1.1% and 3.1%, and reduced unemployment by between 0.6 percentage points and 1.8 percentage points. It's important to note that unlike the Economic Stimulus Act of 2008, the ARRA did not include direct stimulus check payments to Americans.
Instead, according to the CBO, the full stimulus package worked by:
Providing funds to states and localities—for example, by raising federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects. Supporting people in need—such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program), and purchasing goods and services—for instance, by funding construction and other investment activities that could take several years to complete; and providing temporary tax relief for individuals and businesses—such as by raising exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.
Criticism of Stimulus Checks and Programs
Critics contend that the stimulus added some $1 trillion to the deficit and simply shifted economic activity that would have happened anyway. A Mercatus study pointed to unemployment rates, which rose even after the stimulus was implemented, as proof that stimulus checks were ineffective during the 2008 recession.
According to the study, the median duration of unemployment reached a high of 25.5 weeks in June 2010, after averaging 7.2 weeks from 1967 to 2008. Others, like American economist Paul Krugman, have contended that the stimulus amount was too small to be effective.