Since Covid hit, the stable relationship between income and spending broke down.

Opposite Directions

The BEA's Personal Income and Outlays report shows Real Personal Consumption Expenditures (PCE) rose 5.2% but Real Disposable Personal Income (DPI) decreased 1.8%.

Personal saving was $3.37 trillion in June and the personal saving rate—personal saving as a percentage of disposable personal income—was 19.0%.

What's Going On?

The answer is Economic Impact Payments.

The CARES Act of 2020 provided $300 billion in direct support economic impact payments to individuals, with advance tax rebate payments distributed mostly in April 2020.

A $1,200 refundable tax credit was provided to individuals ($2,400 for joint taxpayers) that meet specified criteria. In addition, qualified taxpayers with children receive $500 for each child. The amount of the rebate phases out at $75,000 for individual filers, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income. The rebate phases out entirely at $99,000 for single taxpayers with no children and $198,000 for joint taxpayers with no children. Tax returns for 2019 or 2018 will be used to calculate the advance payment to taxpayers, but taxpayers eligible for a larger rebate based on 2020 income will receive the increased amount in 2021 when taxes are filed during the 2020 tax filing season.

Taxpayers with higher incomes in 2020 will see any overpayment associated with their rebate forgiven.

Those $1,200 checks packed a wallop because they went out whether or not anyone was impacted.

In contrast, the $600 weekly checks more than made up for lost income for some people, but others lost income. 

What's Next?

That depends on Congress and President Trump, assuming Trump would sign any bill Congress passed.

Bickering could last weeks. Meanwhile, benefits expired.

Clock Runs Out

As noted on Sunday, the Clock Just Ran Out on $600 in Weekly Unemployment Benefits.

 

Cynical Tweet Discussion Regarding the Clock

fxsoriginal

"So Far Apart on Covid Deal That We Really Don't Care"

On Wednesday Trump proclaimed "So Far Apart on Covid Deal That We Really Don't Care"

Congress Left Town Without a Coronavirus Stimulus Deal

On Friday, Congress Left Town Without a Coronavirus Stimulus Deal.

In dueling press conferences, White House Chief of Staff Mark Meadows laid into Democrats for rejecting a short-term deal to continue the bolstered unemployment benefit for one week, while House Speaker Nancy Pelosi railed against Republicans and the Trump administration for attempting to take a piecemeal approach to helping Americans as COVID-19 cases continue to surge nationally. 

Republicans Propose $1,000 Stimulus Checks

How Stimulus Checks Would Change

On Thursday a group of Republican Senators Proposed $1,000 Stimulus Checks.

In order to qualify, both adults and dependents would need valid Social Security numbers. Under the bill, a qualifying family of four could potentially receive $4,000 — $600 more than they received in the CARES Act.

The payments would be more generous than the first checks, according to the Tax Foundation — $1,584 on average versus $1,523 on average in the first round.

The thresholds at which the checks would phase out would be slightly lower than the first round, according to the Tax Foundation. Individuals with income above $95,000 would not receive payments, rather than the $99,000 cut off in the CARES Act. Those who are married and filing jointly would not receive checks for income over $190,000, down from $198,000 in the first round.

Trump Blames Pelosi and China

fxsoriginal

Economically, I fail to see the merit in sending $1,000 checks to those not impacted.

I suppose Republicans figure that free money for those not impacted benefits them more than the Democrats.

In regards to the rest of their proposal, it does make sense that people should not make more being unemployed than employed. 

The problem is that it could take weeks or longer for states to program that idea. Meanwhile benefits have already run out.

Philosophically Speaking

Philosophically, people should not make more being unemployed than employed.

Politically speaking, the Republicans just stepped on a landmine.

The irony in the bickering is that the economy would do better (and therefore Trump's reelection chances) the greater the stimulus. 

They are fighting their own best interests for the sake of budget principles they never adhered to before.

This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.

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