US may give out $1,000 checks to combat coronavirus recession. Has it worked before?

Americans could be getting money in the mail from the federal government to induce spending during a possible economic downturn caused by the coronavirus pandemic.

It wouldn’t be the first time.

The U.S. government sent checks to taxpayers in 2001 and 2008 to help stimulate the economy. While economists found not everyone spent the money, finance experts agreed the cash infusion was something of a “backstop” during periods of economic upheaval.

Now lawmakers are floating the concept in response to the coronavirus pandemic.

U.S. Sen. Mitt Romney of Utah suggested sending $1,000 checks to every American, saying it would help families “meet their short-term obligations and increase spending in the economy.”

Representatives from Ohio and California, U.S. Sen. Josh Hawley of Missouri and U.S. Sen. Bernie Sanders of Vermont rolled out their own plans.

By Tuesday, the Trump Administration had echoed the idea.

Treasury Secretary Steven Mnuchin told reporters during a press conference the administration is “looking at sending checks to Americans immediately — and I mean now, in the next two weeks,” the Washington Post reported.

Similar checks in 2001 and 2008

Former U.S. President George W. Bush offered similar rebates twice during his time in office — once before Sept. 11, 2001, and then again during the Great Recession, CNN reported.

Shortly after taking office in 2001, Bush signed “into law the most sweeping tax cut in two decades,” The New York Times reported.

The law laid out $1.35 trillion in tax cuts, which included rebate checks, according to the Times.

Single filers were mailed checks for $300, single parents were given $500, and joint-filers were given $600, the Times reported.

Seven years later, the government again sent checks “to about every adult” for between $300 and $600 — plus $300 per child — during the Great Recession, the Washington Post reported.

According to CNN, about 130 million households received that tax rebate. Couples received up to $1,200 but it “phased out at higher income levels.”

The rebates cost the government around $100 billion, CNN reported.

Did they work?

The idea behind a rebate is to stimulate the economy by providing consumers with spending money, according to Investopedia.

“When taxpayers spend this money, it will boost consumption and drive revenues at retailers and manufacturers and, thus, spur the economy,” Investopedia reported.

But there’s been much debate as to how money sent out in the form of rebates was spent — if at all — in 2001 and 2008.

Initial taxpayer surveys after the rebates were mailed in 2001 indicated spending was lower than what economists predicted, according to the Tax Foundation.

One survey by economics professors Matthew Shapiro and Joel Slemrod found only 22 percent of households actually spent the rebate, while others either saved it or used it to pay off debt.

Shapiro and Slemrod also studied the 2008 rebates, surveying 2,518 individuals over a period of five months. Of the households reporting they would receive a rebate, about 20 percent said they’d spend it, according to the National Bureau of Economic Research.

“Nearly 32 percent reported that they would mostly save the rebate, and 48 percent reported that they would mostly pay debt with the rebate,” the NCBER reported, citing Shapiro and Slemrod’s survey.

According to other academic research at the time, The Wall Street Journal reported about one-third of consumers spent their 2008 stimulus checks.

A finance professor at Northwestern conceded the stimulus “was not enough to avoid a deep recession” but said it did “contribute significantly to maintaining consumer demand.”

According to his findings, households spent half of their stimulus checks in the same quarter they received it.

Claudia Sahm, director of macroeconomic policy for the left-leaning Washington Center for Equitable Growth, told CNN Americans spent about 50 to 90 percent of their rebate in 2008 within three months.

“It’s kind of a backstop,” Sahm said of possible stimulus checks in 2020, according to CNN. “For a lot of Americans, that’s more of a financial buffer than they have. People will notice it.”