Who deserves an incentive check? — Quartz
The US House of Representatives finally passed a long-awaited Covid stimulus package on Saturday, with a relatively small (but very popular) portion of that package going to a third set of taxpayer stimulus measures. As the bill moves to the Senate, a pressing question remains: Who should receive the next round of scrutiny?
As it stands, the Democratic House bill includes $1,400 checks for individuals earning up to $75,000, plus $1,400 for each dependent, the same limit as in previous rounds of stimulus. Payments are phased out above those income thresholds. Individuals earning more than $100,000 a year and couples earning more than $200,000 would not receive a check. That’s despite efforts by Republicans and Democratic budget hawks to curb spending and improve economic news, suggesting Americans are better off than they were when they got the first two rounds of scrutiny.
The logic behind the current shutdown comes from two components: who will hurt the most and who will spend the money. White House lawmakers and Democrats mostly got their answers from data collected by a trio of economists — Raj Chetty, John Friedman and Michael Stepner of Harvard University’s Opportunity Insights — who collaborated early in the crisis to analyze how consumers spent the first two rounds of stimulus checks to better predict future needs.
Who spends their incentive check?
the economists study, based on consumer credit and debit card data, found that households with incomes over $78,000 spent very little of their second stimulus check, at least not immediately. In the first month after they got them, these households only spent $45 of the $600 they received.
This marked a large decrease in what higher-income households spent after receiving the first stimulus check. Given that this stimulus came at a time when unemployment was skyrocketing and employment and savings have largely recovered for higher income earners since then, Chetty et al argued that the next round of stimulus should target lower-income households who are more likely to spend the money. , while providing the program savings for other types of support. Republican lawmakers agreed, and in the Senate, Democratic Senator Joe Manchin and Republican Senator Susan Collins passed a bipartisan change to prevent “higher income” households from receiving a check, although it didn’t define what that meant. Collins has since said that “setting a lower limit than the House for the stimulus controls” is still on the table.
Who deserves an incentive check?
But Biden and House Democrats have sided with other economists who question these takeaways. It is difficult to judge who earns aid based on income alone, as Covid-19 has hit some areas harder than others, and the cost of living varies widely by region. For example, tourism-dependent Kahului, Hawaii, has suffered double-digit unemployment during Covid-19, notes former Federal Reserve economist Claudia Sahm, but its median income of $81,000 is above the lower check income threshold. In New York City, the metro area with the highest number of Covid-19 cases, she notes, the median income is $83,000.
Sahm believes lowering the limit below $75,000 would hurt those families. She points to a longer history of research into past stimulus programs and the surge in January retail sales, both of which suggest that a large number of consumers are still issuing their checks. ‘The argument that we should focus more on them on the basis of economics does not hold,’ says Sahm.
There are also gaps to be filled by unreliable unemployment benefits. Sahm points to data showing that half of US households lost income from work last year, but only a fifth received unemployment benefits. The differences were greatest among lower-income families, but many above the $75,000 income level — who would receive partial payment with the current phasing out of checks — still lost.
Loss of income even puts financial pressure on wealthier families, says Sahm, whose spending is demonstrable more bound to household liquidity and savings.
How should people spend incentive checks?
Opportunity Insights data also doesn’t account for households that used stimulus money to pay off debt on loans, rent and mortgages. About 12 million families were a average of $6,000 behind on rent or utilities from January. “There are people who need those checks to pay their mortgages and their children’s school fees. They don’t pull the hearts, but they really need the money,” says Sahm.
And paying off debt is still a boon to the economy, others say, another reason to keep the lockdown where it is, despite the improving outlook. Given that nearly half of Americans couldn’t cover an unplanned savings event, Greg McBride, Bankrate.com’s chief financial analyst, says the stimulus “will be more beneficial in the longer term if households can regain a stable financial footing.”
Treasury Secretary Janet Yellen supports that idea. “The truth is there are pain points beyond what can be achieved in those very targeted ways,” Yellen said this week of limiting controls to fewer households. The half a million people who wouldn’t get more targeted checks would certainly agree.