While Congress debates the publication of a third round of federal “stimulus controls.” for millions of Americans, economists are trying to assess the effectiveness of these payments to help feed the economy through the coronavirus pandemic. The results have been mixed, according to new research.
While helping keep some families afloat, households earning more than $ 78,000 have largely issued the $ 600 check the U.S. began sending in December, according to a study by the Opportunity Insights Economic Tracker , a non-profit research group led by Harvard economics professor Raj Chetty. In contrast, families below this income tend to spend money quickly.
Perhaps not surprisingly, these findings suggest that lower-income families need money to stimulate their accounts and other needs, while lower-income families generally do not. More revealingly, the analysis highlights the disproportionate impact of the pandemic on the poorest Americans.
“We see this massive discrepancy,” said Michael Stepner, an economist at Opportunity Insights. “Since mid-June, the recession in jobs for higher-income families has been excessive: employment has been the same as 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 eligible people. That’s more than the two checks that have hit most U.S. homes so far, with $ 1,200 per adult shipped last spring and $ 600 per person in early January.
But many things about the pandemic have changed since the spring of 2020, when the crisis closed the economy and affected a wide range of workers. Since then, higher-income workers have largely recovered to their level, with much lower-income workers more likely to suffer job or income losses.
Meanwhile, Stepner said, jobs for lower-income Americans continue to fall by about 20 percent compared to pre-pandemic levels due to successes in sectors more likely to employ low-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 investigation may provide ammunition to lawmakers who have criticized stimulus controls for not providing specific aid, such as Senate Minority Leader Mitch McConnell, who described a previous effort to send $ 2,000 stimulus checks as “socialism for the rich.” The Biden administration says two-thirds of the checks have gone 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 below $ 78,000 quickly increased spending in January, jumping nearly 8 percent. percentage points in the two weeks following the $ 600 disbursement.
But spending barely increased among households with incomes above that level. According to his analysis, families earning more than $ 78,000 will spend only $ 45 of the 600 payments they received.
“A higher explosion for the dollar”
These findings raise questions for Stepner and his researchers about whether sending a third stimulus control to low- and high-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 would be spent and recycled into the economy.
“If we want to send money to people, we want it to stimulate the economy,” Stepner said. “Targeting payments to lower-income households means a much larger increase for investment.”
Surely, this analysis is unlikely to be popular among families earning more than $ 78,000 and who could be on the verge of receiving 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 above $ 200,000, according to recently released IRS data.
These higher-income households may spend their $ 600 checks once the pandemic is over: on a postponed vacation, going out to eat at restaurants, enjoying live theater or music, or other activities that have been postponed for the pandemic, for example. Meanwhile, there are now many families and the economy hurting, which Stepner says is an argument to focus the next round of helping help provide immediate support.
Best ways to foster 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, “Much of the money goes to households that don’t need the funds and will save it a lot, at least initially.”
Zandi noted that increased economic growth is lower for stimulus controls than other types of government spending, with food stamps and additional unemployment assistance.
But many high-income Americans say they also need money for the stimulus. According to a recent Credit Karma survey, nearly half of households with incomes above $ 150,000 said they needed stimulus controls for financial stability.