Newsom and DeSantis clash over the best anti-inflation stimulus tests
- About 23 million Californians are set to receive stimulus checks as Governor Gavin Newsom seeks to tackle inflation.
- The more targeted aid for Florida Governor Ron DeSantis would reach just 59,000 families and at a much lower cost.
- While the easing aims to offset high inflation, the program for both countries could push prices higher.
On opposite coasts, two governors prepare to cut checks to help their residents deal with the inflation sweeping the country.
But their approaches look completely different.
In the East, Florida Governor Ron DeSantis is preparing checks for a subset of the population hard hit by price hikes. DeSantis has long been fiscally conservative, opting for aid for 59,000 families through a comprehensive — and costly — stimulus programme.
In the West, California Governor Gavin Newsom is taking the opposite approach. The governor is exploiting the record reserves in the Golden State to send large aid to 23 million, marketing the payments as “middle class tax deduction“It aims to offset the impact of inflation.
However, critics worry that more cash relief could exacerbate the very problem he hopes to tackle, a criticism of Biden’s pandemic stimulus measures that has been much voiced over the past year.
“There is a possibility that macroeconomic stimulus on a scale closer to World War II levels than normal levels of recession will produce inflationary pressures of the kind not seen in a generation,” former Treasury Secretary Larry Summers said in a op-ed for the Washington Post. Before agreeing to Biden’s $1.9 trillion stimulus package.
The federal government’s stimulus checks and other forms of financial support served Americans with a desperate need for money in the pockets when millions of people suddenly lost their jobs. It also led to a strong increase in consumer spending. New state rebates could fuel a similar trend and widen the inflationary gap between supply and demand.
Democrats are betting that massive stimulus will fill the hole that inflation has created in Americans’ finances. Meanwhile, Republicans are being tougher in helping them amid concerns that widespread stimulus could boost prices higher.
Democrats who are pro-stimulus and Republicans scared of inflation
California aid is among the most generous. Lawmakers Newsom and Democrats approved a $17 billion aid package in June, which included stimulus payments to nearly 23 million Californians. Families will receive up to $1,050 in a one-time payment, and checks begin to shrink for those earning more than $75,000.
The payments are intended to “help you fill up your tank and put food on the table,” Newsom said June 26. tweet. The governor’s office did not respond to a request for comment.
The payments will be disbursed in October, ahead of the November elections where Newsom is expected to win. The government funds the additional economic checks and exemptions through its own reserves, which amounted to $37 billion in the previous tax year.
California isn’t the only one that sends out checks. Colorado, Hawaii, Illinois, Maine and a handful of other states have supported similar, albeit smaller, deductions in recent weeks.
In Florida, DeSantis took a more targeted approach to helping inflation. About 59,000 families who already receive regular government assistance will receive a one-time $450 per child.
These include families with foster children, and low-income families receiving cash assistance, including some single parents. The program will cost about $36 million, funded by an earmark in the $1.9 trillion stimulus package that President Joe Biden signed last year.
The US bailout limits how countries can spend that particular pocket of money. In turn, California gets more space by utilizing its own reserves.
In a statement, the Florida Department of Children and Families said it had to spend the US bailout money or else they would have returned to the federal government. Families will get the money before they go back to school for shopping and sales tax vacation.
In a letter to families, DeSantis described the program as helping to “offset the costs of rising inflation.” At press conferences across Florida, DeSantis frequently uses the term “Bidenflation” to describe rising costs and has blamed the US bailout for contributing to the problem.
DeSantis has resisted calls from Florida Republican Senator Rick Scott, his predecessor in the governor’s mansion, for states to return stimulus aid to the federal government.
His office did not respond to Insider’s questions, but former DeSantis press secretary Christina Buchou chirp The Florida governor’s office does not believe that checks contribute to inflation.
“Federal government is causing inflation through deficit spending,” Buchou wrote on Twitter. “The stimulus checks were part of that. By contrast, Florida’s budget surplus is statewide and it’s really money out there, and we’re not printing money here. So – no, it doesn’t cause inflation.”
Undoubtedly, inflation is caused by imbalances between supply and demand. Deficit spending can raise demand, but spending new money does not necessarily lead to inflation. Similarly, spending money already in state coffers can lead to increased inflation.
Various approaches to scrutiny emphasize the contradictions of DeSantis and Newsom in ideology. Newsom has cast his state’s relief as a counter to inflation, saying in May that the money “will help offset the higher costs Californians face.” All non-dependants in California with a 2020 tax return and annual earnings less than $500,000 will be eligible for at least some exemption. This makes the program more comprehensive than the Florida program.
Meanwhile, DeSantis has been more cautious with spending his state’s money. The fiscal governor vetoed $3.1 billion in the latest budget sent to him by the Republican-controlled legislature, and the state has nearly $22 billion in surplus. DeSantis said the money could come in handy in the future if there is a nationwide recession.
Both strategies come with significant risks
On the face of it, the two countries’ plans seek to counter the effects of high inflation without exacerbating the problem. However, both efforts have some nasty pitfalls that show weaknesses in each side’s views on government spending.
Newsom’s checks may exacerbate the inflation that has already gripped millions of Californians. Stimulus checks passed earlier in the pandemic led to sharp increases in demand as recipients quickly turned around and spent their extra cash. The payments helped the economy recover quickly, but as companies struggle to meet the extraordinary demand of Americans, prices skyrocketed.
In the meantime, DeSantis’ strategy may repeat the mistakes of previous recessions. The Republican Party has long favored fiscal austerity over broad spending, arguing that targeted measures reduce the risk of rising inflation. However, the early push toward austerity in the years following the financial crisis led to an unnecessarily long recovery. The latest round of relief checks will leave millions of Florida without any help, and with inflation accelerating, a lack of support could force families to tap into their savings just to shake off price hikes.
The two approaches to inflation aid show another wedge between the country’s political factions. With Democrats fearing fiscal pain and Republicans denouncing inflation risks, the solution to higher prices remains highly biased.