People across North Carolina and the US began receiving deposits from the federal government this week as part of the federal coronavirus relief package, known as the CARES Act. Under the legislation, all Americans meeting certain income thresholds will receive a direct cash payment from the IRS, regardless of if they have been economically affected by the coronavirus shutdown.
Understandably, most people will be excited to see the number in their bank accounts jump overnight.
Since many of the people negatively impacted are struggling as a result of government-mandated shutdowns, there is a valid case for government to mitigate those impacts. But it is important to remember that there is no such thing as “government money” – the money funding the relief efforts comes from taxpaying Americans, both present and future.
With that in mind, there are compelling reasons why we should be skeptical of normalizing government providing direct cash payments to taxpayers in times of emergency.
Reason 1: This won’t “stimulate the economy”
The checks are largely being framed as “stimulus” money – similar to the language used in 2008 as the nation grappled with the Great Recession. To the credit of the Trump administration, the IRS avoids the “stimulus” language, calling the checks “Economic Impact Payments” instead.
It is important to remember that government spending can provide temporary relief for struggling families, but the money is unlikely to mitigate the broader economic impacts of the virus.
Civitas Executive Vice President Brian Balfour explains it this way:
A one-time potential boost in demand won’t encourage businesses to invest in expanding and hiring more workers.
Moreover, government checks being sent to consumers will not magically translate into an increase of productivity or more goods and services being produced. It won’t put workers that are being required to stay home and distance themselves back in factories or offices. It won’t enable parents who are forced to stay home and care for their kids because their daycares are closed to get back to work.”
The language that we use around this policy tool matters. Balfour emphasizes the dangers of believing the rhetoric:
The notion that government should try to “boost demand” during economic downturns is textbook left-wing Keynesian policy that conservative, market-friendly legislators typically scorn. They shouldn’t let sound economics fall prey to panic.”
For more information, read Balfour’s full article here.
Reason 2: Deficit spending
Unlike a similar plan to provide taxpayer rebates to North Carolinians from surplus tax collections, the federal checks are financed through government debt. A federal government that is $24 trillion in debt is unprepared to face a crisis without digging an even deeper hole. This is in stark contrast to the North Carolina state government. The North Carolina State Constitution requires the state to balance its budget on an annual basis and has been able to – through sound fiscal management – to put money aside for emergencies.
We shouldn’t think that the coronavirus response checks (and other spending from the virus response legislation) are simply “free money,” either. A day will come when the nation has to deal with its debt crisis.
Reason 3: Perspective problem
Public response to the coronavirus checks have been largely positive. It feels like “free money” – even though we know it’s not. The sentiment that government should be providers of economic stability or stimulation points to a deeper problem with how our country views the role of government.
Our government is designed to be a system of self-governance. The idea of government as separate from the people – and thus capable of providing to the people that which they did not create themselves – has dangerous repercussions. In the extreme, this line of thinking may explain the growth of the popularity of socialism.
It also explains the political unpopularity of fighting for a balanced federal budget. We are simultaneously unwilling to give up any government services and unwilling to pay for them through the astronomical taxes that would be required to sustain that level of spending.
In illustration of this point, the April 2020 Civitas Poll asked a sample of North Carolina likely voters what steps they thought the government should take to deal with the fiscal impact of the coronavirus on the state budget. While a plurality of respondents said the state should cut non-health spending (46%), thirty-eight percent were unwilling to commit to spending cuts or tax increases.
We have to remember the trade-offs that we face when the government intervenes and spends taxpayer money. Government intervention is often one ineffective and expensive tool for combatting society’s problems.