Income and Spending are Headed in Opposite Directions

Mish

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

Opposite Directions

Real PCE vs Real DPI June 2020

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.

https://content.jwplatform.com/players/kl3tPZLM-kgviJALd.html

Cynical Tweet Discussion Regarding the Clock

"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

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.

Mish

Comments (32)
No. 1-8
Stuki
Stuki

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

If you don't, more and more people will arrange to be "impacted" every day.

The only way to minimize economic distortions, assuming you absolutely have to provide a government safety net, is to hand the money out indiscriminately. Same amount to everyone. From homeless dopeheads to Trump and Bezos to some guy on sitting death row for genocide.

If you pay people specifically because they are unemployed, people will find a way to become unemployed. Or at least try less hard to no longer be. Ditto disability and all the rest.

And that's just the immediate, first order, effect. On top of that, comes all the politicking, favor buying, lobbying, ambulance chasing, pitting "them" against "us" etc.; which inevitably results from empowering a gaggle of privileged hacks to arbitrarily "deem," "find," "decide" and "vote on" who "deserves", "meets criteria" blah, blah, blah.

tokidoki
tokidoki

Highway robbery. This is just pure money transfer to the tech sector.

Tony Bennett
Tony Bennett

"Income and Spending are Headed in Opposite Directions"

...

heh, you are about 20 years late.

Income here includes government handouts. The REAL issue is the steady degradation of Wage & Salary / GDP. Globalization has allowed the top 20% to get ever richer by playing global wage arbitrage. The bottom 80% never had any leverage. Take what they could or risk losing job to offshoring.

Six000mileyear
Six000mileyear

Politicians have figured out that borrowing money and spending it / giving it away is a great way to buy votes. With the expiration of Federal sponsored additional unemployment benefits, how do the Republicans and Trump benefit? Who is paying them NOT to hand out money?

The simplest answer is that Republicans want even more concessions from Democrats. This is partisan politics at their worst since it puts voters last.

A more practical answer is the Federal Government realizes borrowing on behalf of states and muni's would collapse the US Dollar's hegemony if the US government defaulted. Long term, states/muni's would be better off because they would have credit cards with no balance. The wealthy would still have their wealth because they own bonds, which would help them retain their ownership of companies as old shareholders are replaced with bondholders who exchanged defaults to shares. Everyone else will take relatively large losses. But achieving that goal can't be made obvious. The middle class will be very upset about having their 401K retirement plans getting wiped out.

Tony Bennett
Tony Bennett

"Bickering could last weeks. Meanwhile, benefits expired."

...

Stalling could weaken Democrats hand. GDPNow latest had Q3 growth at +11.9%. If that trend continues ... won't a mere $trillion be enough ?? ...

Roger_Ramjet
Roger_Ramjet

I thought that "seasonal adjustments" were suppose to keep those lines in sync.

Someone at the BEA is not doing their job.

PecuniaNonOlet
PecuniaNonOlet

I am not one for conspiracy theories but is it possible the GOP DOESNT want to help Americans because if enough pain and suffering is inflicted (evictions, homelessness, starvation, etc) it will cause people to riot and Trump can declare martial law, deploy troops, post-pone election and become defacto dictator?

tokidoki
tokidoki

Most Americans don't need help. They are flush. That's what most people in this board refuse to acknowledge.

GOP is doing the right thing.


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