While Congress debates the issuance of a third round offor millions of Americans, economists are trying to assess how effective such payments are in helping the economy through the coronavirus pandemic. The results are mixed, new research finds.
While helping some families afloat, households earning more than $78,000 have largely thrown away the $600 check the US began sending in December, according to a survey by the Opportunity Insights Economic Tracker, a nonprofit research group under led by Raj Chetty, professor of economics at Harvard. In contrast, lower-income families tend to spend the money quickly.
Perhaps unsurprisingly, such findings suggest that lower-income households need the stimulus money to pay bills and other necessities, while higher-income households generally do not. More revealing, the analysis highlights the disproportionate impact of the pandemic on poorer Americans.
These disparities add fuel to an ongoing debate over a proposed third stimulus check, with President Joe Biden calling for athat would reach most American households. But a group of 10 Republican senators to discuss their alternative proposal: $1,000 checks that would be paid to singles earning up to $40,000 and married couples earning up to $80,000.
Payment amounts would decrease incrementally by income level until they were completely discontinued for singles earning more than $50,000 and married couples earning more than $100,000. The GOP plan would cost $220 billion, compared to $600 billion under Mr Biden’s more generous stimulus package, which would carry a price tag of $1.9 trillion.
But the Opportunity Insights findings suggest that targeting the third round of stimulus checks on lower-income Americans could yield a bigger economic payoff.
“We see this huge discrepancy,” said Michael Stepner, an economist at Opportunity Insights. “Since mid-June, the recession in jobs for higher-income households has ended – employment is just like it was before the pandemic,” because their work can be done remotely.
But much has changed about the pandemic since the spring of 2020, when the crisis closed the economy and hit a large number of workers. Since then, higher-income workers have largely regained their position, with low-income workers much more likely to lose their job or income.
Meanwhile, Stepner said, jobs for lower-income Americans are still down about 20% from pre-pandemic levels due to hits in industries that are more likely to employ low-paid workers, such as restaurants or retailers.
“That’s millions of jobs lost, and millions at the bottom of the income distribution are still out of work,” he said.
The investigation could provide ammunition for lawmakers who have criticized the stimulus checks for failing to provide targeted relief, such as Senate Leader Mitch McConnell, who described a previous effort to send $2,000 stimulus checks as “socialism for rich people.” The Biden administration says two-thirds of the checks went to families with less than $90,000 in income.
Analyzing credit and debit card spending data, Stepner and co-researchers Chetty and John Friedman found that households with annual incomes less than $78,000 increased their spending rapidly in January, by nearly 8 percentage points in the two weeks after the $600 checks hit. were paid.
But for households with an income above that level, spending hardly increased. Their analysis estimates that families earning more than $78,000 will spend only $45 of the $600 payments they have received.
“Higher value for money”
These findings raise questions for Stepner and his co-investigators about whether sending a third incentive check to both low- and higher-income families is an efficient use of government aid.
Providing a $1,400 check to households earning more than $78,000 would cost the government $200 billion, but economists estimate that only $15 billion of that would be spent and recycled into the economy.
“If we’re going to send money to people, we want it to stimulate the economy,” Stepner said. “By targeting payments to lower-income households, you get a lot more bang for your buck.”
To be sure, this analysis probably won’t be popular with families making more than $78,000 who could be lining up to receive a check for $1,400 per person in the coming months. The first stimulus check was sent to more than 30 million households with incomes over $75,000, including 400,000 households with incomes over $200,000, according to recently released IRS data.
Those higher-income households are likely to spend their $600 checks once the pandemic is over — on postponed vacations, dining out at restaurants, enjoying live theater or music, or other activities that have been postponed during the pandemic, for example. Meanwhile, many families and the economy are now hurting, which Stepner says is an argument for focusing the next round of relief on providing immediate support.
Better ways to boost growth
Other economists have also argued that the stimulus, while popular, is not the most effective form of economic stimulus, including Mark Zandi, chief economist at Moody’s Analytics. In a research paper dated Jan. 15, he wrote, “Much of the money goes to households that don’t need the money and will save a lot of it, at least initially.”
The momentum of economic growth is smaller for stimulus than for other types of government spending, with food stamps and additional unemployment aid both being more effective, Zandi noted.
But many high-income Americans say they need the stimulus money, too. According to a recent survey by Credit Karma, nearly half of households with incomes over $150,000 said they needed the stimulus for financial stability.