California and Florida are dueling over stimulus checks as a tool against inflation, and it's the latest example of their governors' ideological clash

Newsom-Desantis 2
California Governor Gavin Newsom gestures, at the California Science Center outside the Ninth Summit of the Americas, in Los Angeles, California, U.S. June 9, 2022. ; U.S. Florida Governor Ron DeSantis speaks at the Conservative Political Action Conference (CPAC) in Orlando, Florida, U.S. February 24, 2022.Lucy Nicholson/Reuters ; Octavio Jones/Reuters
  • Some 23 million Californians are set to receive stimulus checks as Gov. Gavin Newsom looks to counter inflation.

  • Florida Gov. Ron DeSantis' more targeted aid will reach only 59,000 households and cost far less.

  • While the relief aims to offset high inflation, both states' programs could lift prices even higher.

On opposite coasts, two governors are preparing to cut checks to help their residents deal with the inflation ravaging the country.

But their approaches look completely different.

In the East, Gov. Ron DeSantis of Florida is prepping checks for a subset of residents hit hard by soaring prices. Ever the fiscal conservative, DeSantis is picking targeted aid for 59,000 households over a sweeping — and expensive — stimulus program.

In the West, California Gov. Gavin Newsom is taking the opposite approach. The governor is tapping the Golden State's record-high reserves to send sizable aid to 23 million, marketing the payments as a "middle-class tax rebate" meant to offset the impact of inflation.

Yet critics worry more cash relief could worsen the very problem it hopes to address, a criticism of Biden's pandemic stimulus measures voiced often over the last year.

"There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation," former Treasury Secretary Larry Summers said in a Washington Post column weeks before Biden's $1.9 trillion stimulus package was approved.

The federal government's stimulus checks and other financial support for Americans served a crucial need for money in pockets when millions of people suddenly lost their jobs. They also powered strong upticks in consumer spending. States' new rebates could fuel a similar trend and widen the inflationary gap between supply and demand.

Democrats are betting hefty stimulus will fill the hole inflation has carved in Americans' finances. Republicans, meanwhile, are much more stringent with their aid amid concerns that large-scale stimulus could boost prices even higher.

Stimulus-friendly Democrats and inflation-fearing Republicans

California's aid is among the most generous. Newsom and Democratic legislators approved a $17 billion aid package in June that included stimulus payments for roughly 23 million Californians. Households will receive up to $1,050 in a one-time payment, and checks start to shrink for those earning more than $75,000.

The payments aim to "help you fill your gas tank and put food on the table," Newsom said in a June 26 tweet. The governor's office did not respond to a request for comment.

The payments will go out in October, just ahead of the November election where Newsom is expected to lodge a victory. The government is funding the checks and additional economic relief through its own reserves, which hit a record $37 billion in the previous tax year.

California isn't the only one sending checks. Colorado, Hawaii, Illinois, Maine, and a handful of other states have backed similar, albeit smaller, rebates in recent weeks.

In Florida, DeSantis took a more targeted approach to inflation aid. About 59,000 families who are already receiving regular government assistance will receive one-time $450 checks per child.

These include families caring for foster children, and families with low incomes who receive cash assistance, including some single parents. The program will cost about $36 million, funded by a provision in the $1.9 trillion stimulus package that President Joe Biden signed into law last year.

The American Rescue Plan limits how states can spend the specific pocket of funds. In contrast, California gets more leeway by tapping into its own reserves.

In a statement, the Florida Department of Children and Families said it had to spend the American Rescue Plan funds or else they would have gone back to the federal government. Families will receive the money ahead of back-to-school shopping and a sales tax holiday.

In a letter that went out to families, DeSantis billed the program as one that would help "offset the costs of rising inflation." At press conferences throughout Florida, DeSantis frequently uses the term "Bidenflation" to describe higher costs and has blamed the American Rescue Plan for contributing to the problem.

DeSantis has resisted calls from Republican Sen. Rick Scott of Florida, his predecessor in the governor's mansion, for states to refund the stimulus aid to the federal government.

His office did not respond to Insider's questions, but DeSantis press secretary Christina Pushaw previously tweeted that the Florida governor's office does not view the checks as contributing to inflation.

"The federal government causes inflation by deficit spending," Pushaw tweeted. "Stimulus checks were part of that. By contrast, the budget surplus in Florida is at the state level and it's already money in existence, we do not print money here. So — no, it doesn't cause inflation."

To be sure, inflation is caused by imbalances between supply and demand. Deficit spending can lift demand, but spending new money doesn't necessarily drive inflation. Similarly, spending money that's already in a state's coffers can boost inflation.

The different approaches to the checks underscore DeSantis and Newsom's contrasts in ideology. Newsom pegged his state's relief as a counter to inflation, saying in May the funds "will help offset the higher costs that Californians are facing." All California non-dependents with a 2020 tax return and less than $500,000 in annual earnings will be eligible for at least some relief. That makes for a far more inclusive program than Florida's.

DeSantis, meanwhile, has been more cautious in spending his state's funds. The fiscal conservative vetoed $3.1 billion in the latest budget the GOP-controlled legislature sent him, and the state has a nearly $22 billion surplus. DeSantis has said the funds could be helpful down the line if there's a nationwide recession.

Both strategies come with major risks

At face value, both states' plans seek to counter the effects of high inflation without worsening the problem. Yet both efforts have some nasty pitfalls that show weaknesses of each party's views on government spending.

Newsom's checks could exacerbate the inflation that's already gripped millions of Californians. The stimulus checks passed earlier in the pandemic powered sharp increases in demand as recipients quickly turned around and spent their extra cash. The payments helped the economy quickly rebound, but as businesses struggled to meet Americans' extraordinary demand, prices rocketed higher.

DeSantis' strategy, meanwhile, could repeat the errors of recessions past. The GOP has long preferred fiscal austerity over widespread spending, arguing that targeted measures minimize the risk of higher inflation. Yet an early push for austerity in the years after the financial crisis lead to an unnecessarily long recovery. The latest round of relief checks will leave millions of Floridians without any aid, and as inflation accelerates, that lack of support could force households to tap into their savings just to ride out the price surge.

The two approaches to inflation aid show yet another wedge between the country's political factions. With Democrats fearing financial pain and Republicans decrying inflation risk, the solution to soaring prices remains highly partisan.

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