As Congress debates issuing a third round of federal “stimulus checks” For millions of Americans, economists are trying to estimate how effective such payments are in helping the economy during the coronavirus pandemic. The results have been mixed, new research finds.
While households earning more than $ 78,000 helped keep some families afloat, they largely wiped out the $ 600 check that the U.S. started sending out in December, according to a survey by the Opportunity Insights Economic Tracker, a nonprofit research group headed by Professor Raj Chetty, a Harvard economics professor. In contrast, families below that income 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 don’t. More revealing, the analysis highlights the pandemic’s disproportionate impact on poorer Americans.
“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 been over-employment – just like before the pandemic,” because their jobs can be done remotely.
The findings come as lawmakers debate President Joe Biden’s $ 1.9 trillion stimulus bill, who has a $ 1,400 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 sent last spring and $ 600 per person in early January.
But much has changed about the pandemic since the spring of 2020, when the crisis turned its back on the economy and affected a wide range of workers. Since then, higher-income workers have largely recovered their position, with lower-income workers much more likely to lose their jobs or income.
Meanwhile, Stepner said, jobs for low-income Americans are still down about 20% compared to pre-pandemic levels due to hits in industries more likely to hire low-paid workers, such as restaurants or retailers.
“That’s millions of jobs being lost, and millions at the bottom of the income distribution are still out of work,” he said.
The investigation could provide ammunition to lawmakers who have criticized the stimulus controls for failing to provide targeted assistance, such as Senate Leader Mitch McConnell, who described an earlier attempt to send $ 2,000 stimulus checks as “socialism for rich people.” Biden’s records say two-thirds of the checks went to families with incomes less than $ 90,000.
By analyzing data on credit and debit card spending, Stepner and his fellow 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 checks for $ 600 had been paid.
But the expenditure of households with an income above that level hardly increased. Their analysis estimates that families making more than $ 78,000 will spend only $ 45 of the $ 600 they received.
“Higher bang for your buck”
Those findings raise questions for Stepner and his fellow researchers as to whether sending a third stimulus check to both low- and higher-income families is an efficient use of government support.
Providing a check for $ 1,400 to households earning more than $ 78,000 would cost the government $ 200 billion, but the economists estimate that only $ 15 billion of that would be spent and recycled in the economy.
“If we’re going to send money to people, we want it to stimulate the economy,” said Stepner. “If you target payments to low-income households, you get much higher bang for your buck.”
Certainly, this analysis is unlikely to be popular with families earning more than $ 78,000 who could receive a check for $ 1,400 per person in the coming months. The first stimulus check was sent to more than 30 million households earning more than $ 75,000 – including 400,000 households with incomes of more than $ 200,000, according to recently released IRS data.
Those higher-income households are more likely to spend their $ 600 checks once the pandemic is over – for example, on deferred vacations, eating out at restaurants, enjoying live theater or music, or other activities that were postponed during the pandemic. Meanwhile, many families as well as the economy are now suffering, which Stepner says is an argument for focusing the next round of emergency relief on providing immediate support.
Better ways to stimulate 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 January 15 research note, he wrote, “A lot of the money goes to households that don’t need the money and will initially save a lot of it.”
The stimulus to economic growth is less for stimulus controls than for other types of government spending, with food stamps and additional unemployment support both more effective, Zandi noted.
But many high-income Americans say they need the stimulus money too. According to a recent study by Credit Karma, nearly half of households with incomes over $ 150,000 said they needed stimulus controls for financial stability.