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As Congress debates issuing a third round of federal “stimulus checks” to millions of Americans, economists are trying to assess just how effective such payments are in helping nurse the economy through the coronavirus pandemic. The results have been mixed, new research finds.
While helping keep some families afloat, households earning more than $78,000 have largely socked away the $600 check the U.S. started sending out in December, according to a study from the Opportunity Insights Economic Tracker, a nonprofit research group led by Harvard economics professor Raj Chetty. By contrast, families below that income tend to quickly spend the money.
Perhaps not surprisingly, such findings suggest that lower-income households need the stimulus money to pay for bills and other necessities, while higher-income households generally do not. More revealingly, the analysis highlights the disproportionate impact of the pandemic on poorer Americans.
“We see this massive discrepancy,” said Michael Stepner, an economist with Opportunity Insights. “Since the middle of June, the recession in jobs for higher income households is over — employment has been 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 eligible people. That’s more than the two checks that so far have reached most U.S. households, with $1,200 per adult sent last spring and $600 per person sent in early January.
But much about the pandemic has changed since spring 2020, when the crisis shuttered the economy and affected a wide range of workers. Since then, higher-income workers have largely recovered their footing, with low-income workers far more likely to still be suffering job or income losses.
Meanwhile, Stepner said, jobs for lower-income Americans are still down about 20% compared with pre-pandemic levels due to hits to sectors more likely to employ low-wage workers, such as restaurants or retailers.
“Those are millions of jobs that are lost, and millions at the bottom of the income distribution are still out of work,” he said.
The research may provide ammunition for lawmakers who have criticized the stimulus checks as failing to provide targeted relief, such as Senate Minority Leader Mitch McConnell, who described an earlier effort to send $2,000 stimulus checks as “socialism for rich people.” The Biden administration says two-thirds of checks have gone to families with less than $90,000 in income.
By analyzing credit and debit card spending data, Stepner and his co-researchers Chetty and John Friedman found that households with annual income below $78,000 quickly increased their spending in January, jumping almost 8 percentage points in the two weeks after the $600 checks were disbursed.
But spending barely budged among households with incomes above that level. Their analysis estimates that families earning over $78,000 will spend only $45 of the $600 payments they received.
“Higher bang for the buck”
Those findings are raising questions for Stepner and his co-researchers about whether sending a third stimulus check to both low- and higher-income families alike is an efficient use of government relief aid.
Providing a $1,400 check to households that earn over $78,000 would cost the government $200 billion, but the economists estimate that only $15 billion of that would be spent and recycled into the economy.
“If we are going to send money to people, we want it to stimulate the economy,” Stepner said. “Targeting the payments to lower-income households gives you a much higher bang for the buck.”
To be sure, this analysis isn’t likely to be a popular with families earning more than $78,000 who could be in line to receive a $1,400 per person check in the next few months. The first stimulus check was sent to more than 30 million household earning over $75,000 — including 400,000 households with incomes above $200,000, according to recently released IRS data.
Those higher-income households may be more likely to spend their $600 checks once the pandemic ends — on postponed vacations, going out to eat at restaurants, enjoying live theater or music or other activities that have been put off during the pandemic, for instance. Meanwhile, many families as well as the economy are hurting now, which Stepner says is an argument for focusing the next round of relief aid on providing immediate support.
Better ways to boost growth
Other economists have also argued that the stimulus checks, while popular, aren’t 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 do not need the funds and will save a lot of it, at least initially.”
The boost in economic growth is smaller for stimulus checks than other types of government spending, with food stamps and extra unemployment aid both more effective, Zandi noted.
But many high-income Americans say they need the stimulus money, too. Almost half of households with incomes above $150,000 said they needed the stimulus checks for financial stability, according to a recent survey from Credit Karma.
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