The topic of economic stimulus payments to Americans is a hot-button issue during the prolonged coronavirus pandemic. One Swedish academic in particular has proposed novel approach to get Americans the money they need and spur the U.S. economy – credit cards.
COVID Continues to Stall the U.S. Economy
The economic turmoil of the coronavirus (COVID-19) pandemic shows little sign of abating. The U.S. economy continues to sputter, even as the rollout of vaccines continues.
Direct payments to millions of Americans is one solution. Still, so far, the plan has been a minefield of political problems and debate as to whether the bailouts go far enough. One of the biggest problems is that many middle-class Americans at the top end of the stimulus spectrum are stashing their payments into savings accounts or bonds. This practice enriches those who are not in dire need of economic support while denying the economy the money it was earmarked.
John Gustavsson, a conservative writer and Ph.D. in economics, believes credit cards might solve the issue.
Stimulus Credit Cards for All Americans
In Gustavsson’s theoretical model, every American would be issued a stimulus credit card rather than a check. That card would come with a $2,000 credit limit and a shelf-life of just three months. Once those three months expire, the card would automatically deactivate.
What is the logic behind a stimulus credit card? According to Gustavsson, the card’s time-sensitive nature would mean every American would have access to $2,000 – but they would have to spend it sooner rather than later. This process would eliminate the chances of better-off Americans stashing the funds away in savings accounts, CDs, or other investments. Compelling individuals to put the money back into the economy by spending rather than saving it would naturally give it a more immediate boost.
Sealing Up Loopholes
Of course, there are ways to use a credit card to get cash, but the plan addresses these potential loopholes. The proposed credit card stimulus plan would ensure that the government-issued credit cards would not allow cash advances. This step would eliminate people’s ability to simply use their stimulus credit card to withdraw the money and store it into accounts.
The other loophole Gustavsson seeks to close is getting cash via refunds. While eliminating people’s ability to game the system might be challenging, one possible option is for retailers to institute no-return or no-refund policies for any purchases made with stimulus credit cards.
Could a Stimulus Credit Card Work?
While a stimulus credit card is unlikely to ever happen, the theory behind the idea is sound. The Supplemental Nutrition Assistance Program (SNAP) operates on a debit card system and features various restrictions to ensure participants spend the government funds correctly.
As Gustavsson says, however, many hurdles must be overcome at the government level:
“Just as with direct deposits or paper checks, there are bound to be cases of people not receiving their credit card and cases of people receiving more than one. These are costs associated with inaccuracy that the government has been willing to pay in exchange for getting stimulus payments out fast.
“And none of this is to say that direct stimulus payments to individuals is the best strategy for mitigating the economic impact of the pandemic. There’s reason to believe that payments to individuals might allow too many businesses to go under, which will make the eventual recovery more difficult.”
The idea of a credit card stimulus payment is similar to a real project in Italy. The Italian government offered cash back rewards for citizens who used their credit cards to make purchases. This novel concept sought to spur the Italian economy after the economic impact of the coronavirus – and combat tax evasion. Over 5.3 million Italians signed up for the government-backed initiative, which expired at the end of 2020. That number accounts for about 10% of the Italian adult population.
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Featured photo by Nicole De Khors / Burst