How Much Would $2,000 Checks Cost?
With the enactment of the Response & Relief Act yesterday, policymakers in both parties have called for expanding recovery rebates from $600 per person to up to $2,000 per person. Depending on the design, we estimate this would cost between $300 and $435 billion on top of the $166 billion of rebates in the relief bill. JCT has estimated that the House-passed CASH ACT would cost $464 billion, about 7 percent higher than our $435 billion estimate.
We also estimate it will boost economic output by $200 to $300 billion in our central estimate and temporarily lift disposable income in the first few months of next year to as much as 25 percent above pre-COVID levels.
The Response & Relief Act includes recovery rebates of $600 per taxpayer and an additional $600 per child. President Trump has called for lifting the per taxpayer rebate to $2,000 and leaving the per child payment at $600 (so “a family of four would receive $5,200"). Meanwhile, House Democratic Leadership proposed on Thursday to increase the rebates to $2,000 for taxpayers and children. Today, the House is voting on a proposal to increase the rebates to $2,000 for taxpayers, children, and (previously uncovered) adult dependents; that bill would also retroactively award the CARES Act rebates for these adult dependents.
The additional cost of these proposals vary depending on the details. We estimate the President’s proposal to increase the adult rebates would cost about $300 billion, the original House proposal to increase the rebates to $2,000 for adults and children will cost about $400 billion, and today’s proposal to also include adult dependents will cost roughly $435 billion. Inclusive of the second-round rebates already enacted in the Response & Relief Act, that means the plans will have a total cost of roughly $465 billion, $565 billion, or $600 billion, respectively.
|Proposal||Additional Cost||Total Cost|
|Increase rebate from $600 to $2,000 per taxpayer||$300 billion||$465 billion|
|Increase rebate from $600 to $2,000 per taxpayer and child||$400 billion||$565 billion|
|Increase rebate to $2,000 per taxpayer, child, and adult dependent||$435 billion||$600 billion|
The additional rebates cost more than simply multiplying the $166 billion cost of the original $600 proposal because more higher-income households become eligible if the amount increases. Under the enacted proposal, a family of 5 would get a $3,000 check at $150,000 of income, phasing down to $0 by $210,000 of income. If the amount increases to $2,000 per person and the phaseout rate is unchanged (as under the House bill), a family of 5 would get $10,000 at $150,000 of income, $5,000 at $250,000 of income, phasing down to $0 only above $350,000 of income.
These rebates will boost income substantially. We recently estimated the COVID relief bill would temporarily boost personal disposable income to as much as 13 percent above pre-COVID levels in the first quarter of next year. Assuming no further economic boost, enactment of these rebates would further boost disposable income to between 20 and 23 percent above pre-COVID levels. Incorporating the additional effects on output, income could be 25 percent higher or more.
The rebates will also boost economic output and growth, though the effect on economic output in the first quarter of next year is likely to be far more muted than the income effect. Because the economy would also be close to its potential in light of social distancing thanks to the Response & Relief bill, it is likely that further stimulus would have limited additional near-term effects. Instead, we expect people would save a large share of their rebates in the near-term (they could also cause a modest boost in inflation and thus erode their value – though we would expect this effect to be small).
Even if people saved much of the rebates in the first quarter of next year, however, they would likely spend the money in the spring and summer as other fiscal support wore off and the combination of warm weather and rising immunity reduced the need for social distancing. Recently, we estimated rebates would have an economic multiplier of between 0.6 and 1.0. Because of the timing of these payments relatively to other stimulus and social distancing, we expect the multiplier to be toward the lower end of that range.
Assuming a multiplier of 0.67x, the rebate expansion would produce between $200 and $300 billion of additional economic output, on top of the $615 billion we estimate would be produced by the Response & Relief bill. As a result, total COVID relief would be sufficient to close the majority of the output gap over the next three years, including a large majority over the next two years.
This blog post is a product of the COVID Money Tracker, an initiative of the Committee for a Responsible Federal Budget focused on identifying and tracking the disbursement of the trillions being poured into the economy to combat the crisis through legislative, administrative, and Federal Reserve actions.