The US House of Representatives finally adopted a long-awaited Covid stimulus package on Saturday, in which a relatively small (but still very popular) portion of this package went to a third round of stimulus checks for taxpayers. As the bill passes to the Senate, there is still an urgent question: Who should receive the next round of checks?
As it turns out, the Democratic House bill includes $ 1,400 checks for people earning up to $ 75,000, plus $ 1,400 for each relative, the same cut-off as in previous stimulus rounds. In addition to these income limits, payments are being phased out. Individuals earning more than $ 100,000 a year and couples earning more than $ 200,000 will not receive a check. That is despite efforts by Republicans and Democratic budget hawks to curb spending and improve economic news, which suggests Americans are better off than when they got the first two rounds of controls.
The logic behind the current cutoff stems from two components: who is hurting the most and who wants to spend the money. White House and Democratic lawmakers mostly got their answers from data collected by a triad of economists – Raj Chetty, John Friedman and Michael Stepner of Harvard University’s Opportunity Insights – who teamed up early in the crisis to analyze how consumers used the first two rounds of stimulus checks to better predict needs going forward.
Who will use their stimulus check?
economists examination, based on consumer credit and debit card data, found that households with incomes above $ 78,000 spent very little of their second stimulus check, at least not immediately. During the first month after receiving them, these households spent only $ 45 of the $ 600 they received.
This accounted for a large decrease compared to what higher-income households spent after receiving the first stimulus check. Given that this stimulus arrived at a time when unemployment was rising and that employment and savings have since largely returned to higher incomes, Chetty et al. Argued that the next round of stimulus should target households. with lower incomes who are more likely to use the funds while directing the program savings to other forms of support. Republican lawmakers agreed, and in the Senate, Democratic Senator Joe Manchin and Republican Senator Susan Collins adopted a two-partisan change to prevent “upper income” households from receiving a check, even if it did not define what it meant. Collins has since said that “setting a lower ceiling than Parliament put on for the stimulus check” is still on the table.
Who deserves a stimulus check?
But Biden and the House Democrats have taken sides with other economists who question these takeaways. It is difficult to judge who deserves relief based on income alone, as Covid-19 has hit some areas harder than others, and the cost of living varies greatly from region to region. For example, tourism-addicted Kahului, Hawaii has suffered double-digit unemployment during Covid-19, former Federal Reserve economist Claudia Sahm notes, but its median income of $ 81,000 is above the lower income limit for checks. In New York City, the metro area with the highest number of Covid-19 cases, she notes, the median income is $ 83,000.
Sahm believes that lowering the limit to below $ 75,000 would harm these families. She points to a longer history of research from previous stimulus programs and the sharp rise in retail sales in January, both of which suggest a large number of consumers are still using their checks. “The argument that we should target them more based on economics does not hold,” Sahm says.
There are also gaps to fill from unreliable unemployment benefits. Sahm points to data showing that half of U.S. households lost income from work last year, but that only one-fifth received unemployment benefits. The gaps were largest among lower-income families, but many above the $ 75,000 income level – which in the current phasing out of checks would receive partial payment – still lost.
Loss of income puts financial pressure even on richer families, says Sahm, whose expenses are arguably bound more to household liquidity and savings.
How should people use stimulus checks?
Opportunity Insights’ data also does not take into account households that used stimulus money to repay debt on loans, rent and mortgages. About 12 million families were one average of $ 6,000 backwards on rent or supply from January. “There are people who need these checks to pay off their mortgages and their children’s education. They do not pull the strings, but they really need the money,” says Sahm.
And paying off debt is still a boon for the economy, others say, another reason to keep the border where it is despite the improved outlook. Given that nearly half of Americans could not cover an unplanned event with savings, says Greg McBride, financial analyst for Bankrate.com, the stimulus will be “more beneficial in the long run if households can regain a stable financial foothold.”
Finance Minister Janet Yellen supports that line of thinking. “The truth is, there are pockets of pain that go beyond what can be achieved in the highly targeted ways,” Yellen said this week about limiting control to fewer households. The half a million people who would not receive a more targeted check certainly agree.