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Philly should send out stimulus checks to help residents weather inflation

As the economic recovery beats on, it’s time for local policymakers to address new and unforeseen challenges in 2022. First and foremost: Philadelphians are contending with the highest inflation in decades.

In December, the consumer price index for the region rose 6.6% over the previous year, nearly five times the 2009-2019 annual average. Such sharp inflation hits especially hard in America’s poorest big city.

While there are few levers to pull to dampen prices on a local level, policymakers should consider taking a page out of the federal playbook to address the needs of struggling households: They should issue stimulus checks.

To confront the pandemic, trillions in government relief programs helped buoy the national economy and, in a surprising turn of events, were so extensive they actually improved the financial situations of millions of Americans. Stimulus checks, enhanced unemployment benefits, and tax-relief programs allowed households to buy necessary items, pay down debt, save, and invest.

A telling example: Following the passage of the $1.9 trillion American Rescue Plan (ARP) in March, census data showed a drop in food insecurity for 160,000 adults in the Philadelphia region.

Unfortunately, food insecurity has risen steadily in recent months and now nears pre-ARP levels. Moreover, the lapse in the ARP’s enhanced monthly child tax credit means that Philadelphians won’t receive additional aid until tax time. With President Joe Biden’s Build Back Better initiative stalled in the Senate, 2021′s tax windfall might be a one-off event. Households that came to rely on the enhanced credit could see their financial situations deteriorate.

» READ MORE: Inflation nation hits Philly | Business Weekly Newsletter

Inflation makes matters worse. Over the last six months, price increases have been broad-based, with spikes in everything from gas to food to rent. Given ongoing supply-chain constraints, a tight labor market, and rebounding consumer spending, it’s unlikely that prices will cool substantially in the first half of 2022. For now, inflation is here to stay.

The good news is that even amid elevated inflation, workers have seen significant wage gains, especially those closer to the bottom. The bad news is that — except in a few industries — pay increases have failed to match or exceed prices. Incomes may be rising fast, but grocery bills are rising faster.

Inflation is sometimes called “a tax on the poor” because it erodes the purchasing power of households that live paycheck to paycheck and are compelled to spend the vast majority of their income. Those who stand to gain from inflation are debtors, like homeowners with fixed-rate mortgages, who pay off their assets over time. Yet, low-income families typically don’t own their homes. In fact, the bottom 40% of American households hold just 9% of all mortgage debt (the top 40% hold 79%).

While households nationwide now sit on an excess of $2 trillion in savings over pre-pandemic trends (a combo of government transfers and diminished spending during lockdowns), the lion’s share of that money is, unsurprisingly, found with those at the top.

Consequently, well-targeted stimulus checks to those most in need would compensate for the child tax credit’s lapse (the average monthly credit in Pennsylvania was $424) and help ease the burden of surging prices.

How much would this cost? It depends on what the city would be willing to spend. According to the Controller’s Office, the city currently boasts its best cash position since at least 2007, due in no small part to $1.4 billion in relief from the ARP.

» READ MORE: Inflation will ease if the pandemic recedes, Moody’s Mark Zandi argues

Some rough back-of-the-envelope math: 1.6 million residents x 23% below the poverty level x $500 stimulus check = $184 million. That’s an expensive, though doable, starting point.

There are different ways to allocate such resources. The city could issue one-time checks (or prepaid cards for the unbanked) to many, phase out the value of checks by income level like the federal government, or issue multiple checks to households with the greatest need.

Assuming the city can do so without encountering any legal hurdles, issuing stimulus checks would put federal resources to use as intended. And because lower-income households tend to spend those extra dollars, there would be positive ripple effects in the local economy.

Policymakers have a good example to follow. Seattle, a city whose poverty rate is less than half of Philadelphia’s, authorized stimulus checks to the city’s most vulnerable residents last fall. (Seattle has also passed significant minimum wage legislation, another policy measure local politicians should push harder for.)

Traditional theory suggests throwing money at an inflation problem might only exacerbate inflation; however, one-time, targeted benefits are unlikely to meaningfully impact prices, whose stressors have more to do with national and international factors than regional ones.

Stimulus checks are not a permanent policy solution, nor would they be permanently advisable given budgetary constraints. But they are a swift way to bring relief to those who need it most.

Matthew Jeffrey Vegari is a writer and economics researcher who previously worked for the City of Philadelphia as a policy associate.

Read More: Philly should send out stimulus checks to help residents weather inflation

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