Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / Why Governments Still Use Paper Checks in 2026
Transcript
- Lucas: The United States Treasury issued about one hundred forty million paper checks last fiscal year. That's down from a peak of nearly five hundred million in the early 2000s, but still more than the entire population of Japan getting a check in the mail. Luna: And we're talking about the same government that runs FedNow — the instant payment system — and processes trillions in electronic transfers every day. Lucas: Right. So why does paper persist? The short answer is that the Treasury's payment systems were built in the 1970s, held together by COBOL code and sheer institutional inertia. But there's a deeper story about who actually needs those checks. Luna: And if walking through the economy with us has made something click — maybe you've started noticing these weird fiscal habits in your own town — a couple of dollars a month at buy me a coffee dot com slash fexingo is genuinely what keeps this show ad-free. It makes a real difference. Lucas: Yeah, it does. And it lets us spend time on things like the Treasury's check printing facility in Philadelphia, which is basically a museum piece. It prints about three hundred fifty million checks a year — for Social Security, tax refunds, veterans benefits, you name it. Luna: So who exactly is still receiving those checks? Is it all just stubborn holdouts? Lucas: Some of it is habit. But a huge slice is the unbanked and underbanked population. According to the FDIC's most recent survey, about 4.5 percent of U.S. households — roughly six million — don't have a checking or savings account. Another twelve percent are underbanked. They rely on paper checks because they have nowhere to electronically deposit. Luna: And the government's solution so far has been to keep mailing them checks, at a cost of about one dollar and six cents per check. That's printing, envelope, postage, processing. Lucas: Exactly. Meanwhile, a direct deposit costs the Treasury about ten cents. So we're talking over a hundred million dollars a year in avoidable costs just on the check production. And that's before you count the float — the time between when the Treasury cuts the check and when it actually clears. Luna: The float is a hidden subsidy, isn't it? The government holds onto that money for days longer than it would with electronic transfer. Lucas: Right. For Social Security checks, the Treasury estimates the float averages about four days. Multiply that by tens of millions of checks and you're looking at billions of dollars of interest-free borrowing from beneficiaries. The Fed actually studied this in 2023 and calculated that if the government fully digitized, the float savings alone would be about two hundred million dollars a year at current interest rates. Luna: So why hasn't it happened? The Bipartisan Infrastructure Law had a provision — I think it was Section 13006 — that required the Treasury to create a plan for electronic payments for all federal benefits by 2025. Lucas: It did. And the Treasury submitted that plan in late 2024. It's actually pretty ambitious. It calls for a phased rollout of prepaid debit cards as the default for benefit recipients who don't have bank accounts, with an opt-out for paper checks. They piloted it in four states — Oregon, Mississippi, New Mexico, and West Virginia — and the results were striking. Luna: What did they find? Lucas: In the pilot, about seventy percent of new beneficiaries chose the card over a check when given a clear explanation of the costs and convenience. The Treasury estimated a forty percent reduction in check volume for those states within the first year. The cards have lower fees than commercial prepaid cards — capped at two dollars a month, no overdraft, free ATM withdrawals at network locations. Luna: But the opt-out is still there. So the checks aren't going away entirely. Lucas: No. And that's the tension. The Treasury has to balance efficiency with accessibility. There are genuine concerns — people with cognitive disabilities who have managed on paper for decades, rural recipients with no ATM access, religious communities that avoid electronic money. The law requires the Treasury to maintain a paper option for any beneficiary who requests it. Luna: So it's a classic fiscal policy problem: the optimal solution on paper runs into real-world equity constraints. Lucas: Exactly. And the cost of those constraints is measurable. The 2026 budget proposal included a line item for check processing services at the Bureau of the Fiscal Service — forty-seven million dollars. That's down from fifty-two million in 2024, but it's still real money. Luna: And the IRS is a whole separate story. They still send out about nine million paper refund checks each year. Most of those go to people who file paper returns — which is about ten percent of filers. Lucas: Right. The IRS has been pushing for years to get those numbers down. In 2025 they launched a campaign that offered a small incentive — I think it was a five-dollar credit toward next year's taxes — for switching to direct deposit. It reduced paper checks by about six hundred thousand in the first year. Luna: That's not nothing, but it's a drop in the bucket. The real leverage is at the Treasury level, with the big recurring benefit programs. Lucas: Agreed. Social Security alone accounts for about forty-five million checks a year. Veterans Affairs adds another twelve million. Those are the programs where a shift to digital could save the most money and reduce the most float. Luna: But there's also a security angle. Paper checks are vulnerable to fraud — washing, forgery, theft from mailboxes. The Treasury's Financial Crimes Enforcement Network reported that check fraud accounted for over seven hundred million dollars in losses in 2024, up from about four hundred million in 2020. Lucas: Yeah, and a lot of that is government checks. They're target number one because they're predictable — same amount every month, same date. So there's a safety argument for digitization as well. Luna: And yet, the Treasury still operates a massive check printing facility in Philadelphia that runs twenty-four hours a day during peak seasons. It's like a time capsule. Lucas: It really is. The facility uses old-school impact printers — the kind that strike through ribbons onto continuous-feed check stock. They print about one point five million checks a day at peak. The place has its own power backup, its own security detail. It's a relic, but it's a highly engineered relic. Luna: So what would it take to shut it down entirely? Lucas: Politically, it's almost impossible. The checks are a tangible connection between the government and millions of citizens. There's a reason why Social Security checks were historically called 'the bond' — they're a physical promise. And the unbanked population isn't shrinking fast enough. The FDIC's latest data shows the unbanked rate dropped from 5.4 percent in 2019 to 4.5 percent in 2023, but that's still millions of people. Luna: And the infrastructure is set up to support them. The Treasury has over seventy thousand authorized financial agents — check-cashing stores, grocery stores, credit unions — that cash government checks for free or low cost. Lucas: Right. So the system is self-reinforcing. People use checks because the infrastructure exists to cash them. The infrastructure exists because people use checks. Breaking that cycle requires either a critical mass of digital adoption or a policy mandate that overrides the opt-out. Luna: Other countries have done it. The UK phased out paper cheques for government payments back in 2013. Sweden is basically cashless. But the US is bigger and more fragmented. Lucas: And more politically sensitive. You can imagine the ads: 'Washington takes away your Social Security check.' It's a third-rail issue. So the Treasury's strategy is slow, voluntary conversion. The 2026 budget includes funding for a new outreach program that partners with community banks and credit unions to offer free bank accounts to benefit recipients — the so-called 'Bank On' certified accounts. Luna: Those accounts have no overdraft fees, no minimum balance, and they come with a debit card. The Treasury is essentially subsidizing the banking infrastructure for the unbanked. Lucas: Exactly. And it's working, slowly. The number of Social Security recipients using direct deposit went from eighty-three percent in 2020 to eighty-eight percent in 2025. At that rate, we'll hit ninety-five percent by about 2035. Luna: Which means the check printing facility in Philadelphia will still be humming for another decade at least. Lucas: Probably. Unless something changes — like a major fraud scandal, or a political push to cut costs, or a technological leap that makes paper checks obsolete even for the unbanked. But for now, the paper check is a stubborn fiscal artifact. It's a reminder that the government moves at the speed of its most vulnerable citizens, not at the speed of efficiency. Luna: And that's a tension worth sitting with. The next time you get a paper check from the government, you'll know exactly what it costs — and who it's for.