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 will boost consumption and drive revenues at retailers and manufacturers and, thus, spur the economy.
- Stimulus checks are checks sent by the US 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 last used during the Great Recession of 2008.
Understanding Stimulus Check
Stimulus checks have been mailed out to taxpayers on several occasions. These checks will vary in amount according to the taxpayer's filing status. Joint taxpayers received twice as much as those filing singly. Those who had unpaid back taxes saw their stimulus checks automatically applied to their outstanding balance.
Research posted on NBER found that the means of delivery of fiscal stimulus makes a difference to 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 stimulus checks did not result in an equivalent increase of consumer spending activity.
How Stimulus Checks Work
The last use of stimulus checks occurred when the U.S. economy entered a severe recession after the financial crisis of 2008. The Obama government estimated that sending out checks would prevent unemployment rates from going beyond 8 percent.
The government sent out checks in 2009 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
- Joint filers—between $600 and $1,200
- With eligible children—an additional $300 for each qualifying child
Did the stimulus work to help pull the economy out of its tailspin?
The Washington Post looked at nine studies and 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 found that the stimulus checks, along with other measures to jumpstart the economy, had by 2011 created between 1.6 million and 4.6 million jobs, increased real GDP by between 1.1 and 3.1 percent, and reduced unemployment by between 0.6 and 1.8 percentage points.
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); 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."
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 Paul Krugman, have contended that the stimulus (and, extension, the amount of checks) amount was too small to be effective.