How Much Would Sending People Checks Cost?

Experts and lawmakers are considering numerous options to help support the economy during the COVID-19 crisis. Last week, we estimated that fiscal impact of an extended payroll tax holiday. More recently, many experts, economists, and policymakers – including the President and several members of the House and Senate – have proposed sending money directly to households.

Direct cash payments to individuals and households would not be unprecedented; in 2001 and 2008, lawmakers enacted tax rebates to help stimulate the economy in the midst of a recession. In both cases, rebates ranged from $300 to $600 based on income – proposals being discussed now are much larger and, in many cases, would be repeated multiple times over the course of the year.

Below we provide rough estimates of some of the ideas that have proposed in recent days. Specifically, we estimate it would cost the federal government $250 billion to send each adult $1,000, $35 billion to send each child $500, and $15 billion to send each Social Security beneficiary $200. Many current proposals call for multiple payments or payments of different sizes. Because costs are largely linear, our figures can be used to estimate these policies. For example, if the government made two payments of $1,000 per adult and $500 per child, it would cost about $570 billion.

Source: CRFB estimates based on Congressional Budget Office data and modeling using Tax-Brain. Note that costs are based on 2019 income and are both rough and rounded.

In order to reduce the costs of payments or offer larger payments for a given cost, policymakers could limit the size of payments based on income. For example, phasing out checks for individuals with over $100,000 of income would reduce the cost by about 10 percent or allow payments to be roughly 11 percent higher. Treating payments as taxable income, subject to the progressive income tax, would reduce costs by roughly 14 percent or allow payments to be roughly 16 percent higher.

In either case, initial payments could be sent to all households and then reconciled with what is owed in April 2021 based on income in 2020. This would allow payments to go out quickly and provide an interest-free loan to higher earners, who may be feeling a liquidity constraint even if they do not ultimately need the extra funds.

Importantly, our estimates are based on last year's income and do not account for behavior effects nor the effect of the current crisis.

As lawmakers develop new ideas to stabilize the economy and address the current crisis, we will continue to provide estimates and analysis.