While Congress debates the issue of a third round of federal “stimulus checks” For millions of Americans, economists are trying to assess the effectiveness of these payments in helping to fuel the economy during the coronavirus pandemic. The results were mixed, new research found.
While helping to keep some families afloat, families earning more than $ 78,000 have dropped the $ 600 check that the U.S. started sending in December, according to a study by Opportunity Insights Economic Tracker, a nonprofit research group led by Harvard economics professor Raj Chetty. In contrast, households below this income tend to spend money quickly.
It is perhaps not surprising that these findings suggest that low-income families need stimulus money to pay bills and other needs, while high-income families generally do not. Most revealingly, the analysis highlights the disproportionate impact of the pandemic on the poorest Americans.
“We see this huge discrepancy,” said Michael Stepner, an economist at Opportunity Insights. “Since mid-June, the job recession for higher-income families is over – employment is just like it was 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, which would include a $ 1,400 check for qualified people. This is more than the two checks that have so far reached most U.S. families, with $ 1,200 per adult sent last spring and $ 600 per person sent in early January.
But much about the pandemic has changed since the spring of 2020, when the crisis paralyzed the economy and affected a wide range of workers. Since then, higher-income workers have largely recovered their position, with low-income workers far more likely to suffer job or income losses.
Meanwhile, Stepner said, jobs for low-income Americans still fell about 20% compared to pre-pandemic levels, due to attacks on sectors most likely to employ low-income workers, such as restaurants or retailers.
“There are millions of jobs lost and millions at the bottom of the income distribution are still unemployed,” he said.
The survey may provide ammunition for lawmakers who criticized stimulus checks for not providing targeted relief, such as Senate minority leader Mitch McConnell, who described an earlier effort to send $ 2,000 stimulus checks as “socialism for the rich” . The Biden government says two-thirds of checks went to families with an income of less than $ 90,000.
When analyzing credit and debit card spending data, Stepner and his co-investigators Chetty and John Friedman found that families with annual incomes below $ 78,000 quickly increased their spending in January, jumping nearly 8 percentage points in the two weeks after the $ 600 checks are paid.
But spending has barely changed among households with income above that level. His analysis estimates that families earning more than $ 78,000 will spend only $ 45 of the $ 600 of the payments they received.
“Higher return on investment”
These findings are raising questions for Stepner and his co-researchers about whether sending a third stimulus check to low- and high-income families is an efficient use of government humanitarian aid.
Providing a check for $ 1,400 to families earning more than $ 78,000 would cost the government $ 200 billion, but economists estimate that only $ 15 billion would be spent and recycled in the economy.
“If we’re going to send money to people, we want to stimulate the economy,” said Stepner. “Targeting payments to low-income families offers a much higher return on investments.”
Surely, this analysis is unlikely to be popular with families earning more than $ 78,000 who could be queued to receive a check for $ 1,400 per person in the coming months. The first stimulus check was sent to more than 30 million families earning more than $ 75,000 – including 400,000 families with an income above $ 200,000, according to recently released IRS data.
These high-income families may be more likely to spend their $ 600 checks when the pandemic ends – on postponed vacations, going out to eat at restaurants, enjoying live theater or music or other activities that were postponed during the pandemic, for example . In the meantime, many families and the economy are suffering now, what Stepner says is an argument for focusing the next round of humanitarian aid on providing immediate support.
Best ways to drive growth
Other economists have also argued that stimulus checks, 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 families who don’t need the funds and will save a lot, at least initially.”
The boost in economic growth is less for stimulus checks than other types of government spending, with more effective food stamps and extra unemployment benefits, Zandi noted.
But many high-income Americans say they also need the stimulus money. Nearly half of households with an income above $ 150,000 said they needed stimulus checks for financial stability, according to a recent survey by Credit Karma.