Will fewer Americans qualify for next coronavirus stimulus checks?

Updated on

So far, there is no official information on the second stimulus checks that are expected to come sometime later this month (if they come at all). Speculation, however, is that the next  stimulus checks would target low-income families, or those earning $40,000 or less. If this turns out to be true, then many Americans won’t qualify for coronavirus stimulus checks.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q2 2020 hedge fund letters, conferences and more

Will many not qualify for coronavirus stimulus checks?

This speculation regarding $40,000 or less as the cut-off income for the next coronavirus stimulus checks was triggered after recent remarks from Senate Majority Leader Mitch McConnell, R-Ky. McConnell did not directly say this, rather he noted that the coronavirus pandemic had hit hard those earning $40,000 or less.

“I think the people who have been hit the hardest are people who make about $40,000 a year or less. Many of them work in the hospitality industry,” McConnell said.

It is largely believed that McConnell didn’t just say the $40,000 figure as a remark. Rather, there is a growing consensus within GOP in that direction.

“Multiple sources say McConnell didn't just throw out $40,000 as a cut-off haphazardly — consensus within GOP is moving that direction, which would sharply limit eligibility,” Jeff Stein of The Washington Post, said in a tweet.

If this turns out to be true, it would significantly reduce the number of Americans who would qualify for the coronavirus stimulus checks. But, such a cut-off could help the GOP keep the next stimulus package to around $1 trillion, something that McConnell previously suggested.

The CARES Act was about $2 trillion, while stimulus checks amounted to about $300 billion. In the first round, direct payments of $1,200 were sent to those making $75,000 or less. The payment amount reduced incrementally for those with income up to $99,000. As of the start of June, the IRS has sent about 160 million payments worth $269 billion under the CARES Act.

In a tweet, Kyle Pomerleau, an economist and resident fellow at the American Enterprise Institute, noted that a $40,000 cut-off could mean there would be coronavirus stimulus checks for about 80 million households. Further, Pomerleau noted that the “IRS has an additional 12 million married couples filing jointly in the $40,000 - $75,000 income range.”

Need to ensure money reaches low-income families

Though the $40,000 cut-off could leave millions of Americans without any direct payment, it would succeed in helping the segment that’s hit hardest by the pandemic. As per the data from the Federal Reserve, about 40% of the households earning less than $40,000 lost their jobs in March. Moreover, about 6% saw their working hours reduced.

A law targeting people with lower income could prove the right decision. However, the government must ensure that the money actually reaches those for whom it is intended.

It was seen with the first stimulus payment that some low-income individuals and families have been difficult to reach. This is possible if such people don’t typically file tax returns or receive any federal benefits.

According to the Center on Budget and Policy Priorities, about 12 million people are still at risk of not getting the first stimulus check because of the same reason.