14 states are offering stimulus payments as an answer to high gas prices and soaring inflation. But some economists warn that stimulus payments in 2020 are what led to current rising costs.
$5 trillion was released into the economy during the height of the pandemic. The Federal Reserve Bank of San Francisco says stimulus payments added 3% to the U.S. inflation rate by the end of 2021.
23 million California residents will receive inflation relief as high as $1,050. Georgia Gov. Brian Kemp signed a bill authorizing a one-time $250 tax rebate for single taxpayers and $500 for joint taxpayers. Other states such as Colorado, Delaware, Hawaii, Idaho, Illinois and Indiana have all filed suit in issuing tax rebates or stimulus checks. But where is the money coming from?
“I think many of the state governments pulled in the reins in 2020 in the face of COVID. And in 2021 there was a considerable rebound in many of the economies and that’s resulted in the income tax revenues from corporations as well as individuals being higher than was projected in 2021 in many cases,” said John Quelch, dean of the Miami Herbert Business School at the University of Miami. “They are, in some respects, spending the surplus that they didn’t anticipate coming in from last year’s tax revenues.”
Quelch says these new smaller payments could drive inflation even higher if “they’re spent immediately by the recipients.”
The Biden administration has previously been in favor of direct stimulus checks, but Quelch says a fourth federal stimulus package for all Americans is “very unlikely.”
“If the Biden administration has not even been able to get agreement on the federal gas tax reduction, it’s very unlikely that any stimulus of this type would be executable at the federal level,” said Quelch.