Even if taxpayers put only a fraction of the money toward additional consumption, the result is more demand-side pressures when there are already supply shortages. Additional one-time transfers put even more pressure on the system. Prices are high, in part, because supply is having trouble keeping up with demand, especially for physical goods. Despite-and in fact contributing to-supply chain breakdowns, container throughput in major U.S. Rebate checks or tax holidays in 2022 come against the backdrop of high inflation, yes, but also all-time highs in income and consumption.Ĭritically, consumers aren’t just paying more-they’re buying more. Personal income, meanwhile, is up 8 percent (inflation-adjusted) since 2019, boosted by both direct and indirect federal assistance.Īnd in perhaps the most shocking number of all, consumption expenditures on goods are up an astonishing 17 percent in real terms since the pandemic began, whereas demand for services has declined slightly. Last year, by contrast, consumer expenditures soared more than 7 percent, and are about 4 percent higher in real terms than they were before the pandemic. In 1975, it simply recovered to what it had been before a dip in 1974. It declined about 1 percent per year in 20, when further payments were made. The year of the 2001 tax cuts, consumer spending increased a modest 1.6 percent.
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In the past, however, most one-time spending through the tax code was in response to an economic downturn, and thus typically came at a time when consumer spending was below average, and when the money was intended to help people keep up with ongoing expenses. Economic studies tend to support moderately higher levels of additional consumption than is self-reported in these surveys. In surveys, 25-30 percent of recipients tend to indicate that they will spend the additional money, compared to saving it or using it to pay off debt. Before that, the 2001 Bush tax cuts included $300/$600 tax credits, and 1975 legislation provided a rebate of 10 percent of taxes paid the previous year, up to a maximum of $200. During the Great Recession, most taxpayers received a refundable tax credit in 2008 and certain SSI recipients received a $250 payment in 2009. The federal government sent multiple rounds of checks since the pandemic began, of course. Sending one-time checks to taxpayers is not new. And gas tax holidays-for now or later in the year-have been approved in four states and counting. Michelle Lujan Grisham (D) plans to call a special session centered around economic relief, with proposals emerging to issue tax rebate checks. Gavin Newsom (D) has proposed sending $400 to every vehicle owner in the state (capped at $800 per household) to defray the higher cost of gasoline. Brad Little (R) signed into law a broader tax package that includes one-time tax rebates of 12 percent of tax liability or $75 per taxpayer and dependent, whichever is greater. Brian Kemp (R) recently signed legislation providing $1.1 billion worth of tax rebates, in the form of $250 to $500 per household checks (capped at actual tax liability). Whereas long-term tax relief or structural reform changes incentivize structures to encourage investment, enhance labor participation, and boost productivity, short-term relief pumps additional money into an environment that is already highly inflationary. Tax rebates, gas tax holidays, and other temporary tax expedients have the potential to add to existing inflationary pressures while doing relatively little to help those in need. It’s unsurprising that many policymakers have jumped at the chance to apply surpluses to meet the genuine needs of many residents-but good intentions do not always make for good policy. States are flush with cash, but taxpayers’ purchasing power is being eroded by high inflation.
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