Send me real-time posts from this site at my email

As Stimulus Check Proposals Grow More Ridiculous, Expiring Unemployment Benefits Should Take Priority

The Coronavirus Aid, Relief and Economic Security (CARES) Act provided one-time stimulus payments of $1,200 to most adults and $500 for eligible dependent children. The money was desperately needed by many who received it -- the country had been largely shut down, COVID-19 cases were spiking, and millions were out of work.

There's a strong argument to be made that a second, similar payment is necessary, with unemployment still at Great Recession-level highs and an increased likelihood of a second wave of COVID-19.

Unfortunately, U.S. politicians now seem to be putting forth stimulus check proposals that are increasingly ridiculous in how far they stray far from the purpose of the original COVID-19 payment. In recent weeks, President Donald Trump has endorsed the idea of a $4,000 tax credit for travel, while Sen. Martha McSally (R-Arizona) one-upped him by proposing $8,000 in credits per adult per year for three years, plus more money for dependents. U.S. Rep. Kevin Brady (R-Texas) put forth a proposal to provide a $1,200 hiring bonus for those who go back to work.

The problem is, these suggestions are costly, they don't actually provide relief where it's really needed, and the proposed changes would mostly help people who are probably in pretty good financial shape already. Sadly, even as lawmakers continue putting forth these suggestions, they're dragging their feet on doing what matters most in keeping people out of poverty and avoiding a major economic disaster: extending expanded unemployment benefits.

Image source: Getty Images.

Why lawmakers should focus on expanded unemployment instead of additional stimulus payments

When the CARES Act passed, the first stimulus payment got money into people's pockets when it was needed most. And the Act also provided an extra $600 in weekly unemployment benefits on top of what states typically provide, while making benefits available to people who don't typically qualify for them. These measures worked, with recent research from Brookings Papers on Economic Activity revealing the stimulus money and extra unemployment benefits kept millions out of poverty.

But now the extra $600 in weekly unemployment benefits is scheduled to come to an end July 31. And when it does, the average weekly payment benefit recipients receive will decline to around $380, leaving most workers with incomes of about a third of what they were making pre-pandemic. With past studies showing around six-in-10 Americans live paycheck-to-paycheck, such a huge drop in income is likely to leave people with far too little money to pay the bills.

And while a second stimulus check may help, if it's the same size as the last one, it's likely to cover less than a month of spending for the typical household. Unfortunately, there's a good chance people who've lost their jobs due to COVID-19 will take longer than that to get back to work.

In fact, during the Great Recession (when around 10% of workers were unemployed), the median duration of unemployment jumped from around 8.6 weeks in November 2007 to 25.2 weeks in June 2010, according to the U.S. Bureau of Labor Statistics. Unemployment is above 10% now, and with many areas closing back down because of increased rates of COVID-19, it could stay that way for a long time. That means the unemployed could be forced to struggle on a fraction of their ordinary income for months on end without expanded benefits -- long after a second stimulus payment has been spent.

What are the consequences if lawmakers don't act?

If lawmakers don't act, unemployed workers' income would drop dramatically, potentially forcing them to raid retirement accounts or borrow money from other sources. Some could face foreclosure, eviction, or damaged credit. All of this could have long-term catastrophic consequences for workers, their families, and the broader economy.

All those Americans whose income has been cut will also have less to spend. Without their dollars going into local economies, more businesses will find themselves in trouble, more layoffs could occur, and the recession could deepen.

Of course, the consequences won't just be felt by the unemployed who've lost their expanded benefits. Landlords will suffer if tenants don't pay rent, and property values will fall if people can't afford to stay in their homes. The stock market could also decline due to the worsening economic conditions and reduced potential for business growth.

Prepare for politicians to drop the ball on extended unemployment benefits

Although extending the extra $600 a week in unemployment aid would likely be the best and most important step lawmakers could take to help stave off economic disaster, expect them to continue putting forth stimulus payment proposals instead of acting. That's because expanded unemployment comes at a far higher price, and it's far less popular among Republican lawmakers, who believe it will discourage people from going back to work.

Because of that, you need to be ready in case it doesn't happen. This could mean saving as much of your expanded unemployment benefit as you can while you're still receiving it, or making sure you're confident in your investments in case of a market crash driven by a deepening recession. You can take these steps now, in case lawmakers don't act, as it's far better to make your contingency plan now than wait until the last minute when it may be too late.

10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue