As Congress debates the issuance of a third round of federal “stimulus checks” for millions of Americans, economists are trying to determine how effective such payments are in helping to nurture the economy through the coronavirus pandemic. The results are mixed, new research finds.
While households earning more than $ 78,000 are helping keep some families afloat, they have largely chased away the $ 600 check that the U.S. began sending out in December, according to a study by the Opportunity Insights Economic Tracker, ‘ a nonprofit research group led by Raj Chetty, a professor of economics at Harvard. By contrast, families below that income tend to spend the money quickly.
It is perhaps not surprising that such findings suggest that lower-income households need the incentive money to pay bills and other necessities, while higher-income households usually do not. More revealingly, the analysis highlights the excessive impact of the pandemic on poorer Americans.
“We see this big difference,” says Michael Stepner, an economist at Opportunity Insights. “Since mid-June, the recession in higher-income households has passed jobs – work was just like before the pandemic”, because their work can be done remotely.
The findings come as lawmakers debate President Joe Biden’s $ 1.9 billion stimulus bill, which includes a $ 1400 check for eligible people. That’s more than the two checks that have reached most U.S. households so far, with $ 1,200 per adult shipped last spring and $ 600 per person shipped in early January.
But much about the pandemic has changed since the spring of 2020, when the crisis hampered the economy and affected a wide range of workers. Since then, higher-income workers have largely restored their position, with lower-income workers most likely still losing jobs or income.
Meanwhile, Stepner said jobs for lower-income Americans continue to decline by about 20% compared to pre-pandemic levels due to hits in sectors that employ lower-wage workers, such as restaurants or retailers.
“There are millions of jobs being lost, and millions at the bottom of the income distribution are still out of work,” he said.
The research could provide ammunition to lawmakers who have criticized stimulus polls for failing to provide targeted relief, such as Senate Minority Leader Mitch McConnell, who described an earlier attempt to send $ 2,000 stimulus checks as ‘socialism for rich people’ has. The Biden administration says two-thirds of the checks are to families with less than $ 90,000 in income.
By analyzing the spending data of credit and debit cards, Stepner and his co-researchers Chetty and John Friedman found that households with an annual income of less than $ 78,000 increased their expenses rapidly in January and jumped nearly 8 percentage points in the two weeks after the $ 600 checks were paid out.
But spending has barely exploded among households with incomes above that level. According to their analysis, families earning more than $ 78,000 will spend only $ 45 of the $ 600 payments they receive.
“Higher blow for the money”
These findings raise questions for Stepner and his fellow researchers as to whether sending a third stimulus test to both low- and higher-income families is an effective use of government assistance.
Providing a $ 1400 check to households earning more than $ 78,000 would cost the government $ 200 billion, but economists estimate that only $ 15 billion of it would be spent on the economy and recycled.
“If we’re going to send money to people, we want it to stimulate the economy,” Stepner said. “Targeting low-income households gives you a much bigger blow.”
To be sure, it is probably not a popular population among families earning more than $ 78,000, who may receive a check for $ 1400 per person in the next few months. The first stimulus test was sent to more than 30 million households earning more than $ 75,000 – including 400,000 households with incomes in excess of $ 200,000, according to recently released IRS data.
Higher-income households are likely to spend their $ 600 checks as soon as the pandemic ends – for example, on postponed vacations, going to restaurants, enjoying live theater or music, or other activities postponed during the pandemic. Meanwhile, many families as well as the economy are now hurting, which according to Stepner is an argument to focus the next round of relief on immediate support.
Better ways to promote growth
Other economists have also argued that stimulus controls, while popular, are not the most effective form of economic stimulus, including Mark Zandi, chief economist at Moody’s Analytics. In a research note of January 15, he writes: “A lot of the money goes to households that do not need the funds and will at least initially save a lot of it.”
The boost in economic growth is smaller for stimulus tests than other forms of government spending, with food stamps and extra unemployment assistance both more effective, Zandi noted.
But many high-income Americans say they need the stimulus money as well. Nearly half of households with an income of more than $ 150,000, according to a recent survey by Credit Karma, needed the stimulus checks for financial stability.