Lawmakers from both parties lobbied the White House over the weekend for a less costly relief package that would only send stimulus payments to the most needy. Under Biden’s proposal, the vast majority of U.S. households would receive $1,400 payments.
“Targeting the stimulus payments to lower-income households would both better support the households most in need and provide a large boost to the economy in the short-run,” said John Friedman, an economics professor at Brown University and co-director of Opportunity Insights. “These checks are really impactful for lower-income households.”
Friedman, Harvard economics professor Raj Chetty and economist Michael Stepner analyzed credit and debit card spending data and found a clear uptick in spending for families and individuals who earn less than about $50,000 after the stimulus payments started to widely hit bank accounts on Jan. 4. In contrast, spending barely moved at all for families and individuals earning over $78,000.
The price tag to send another round of checks to couples earning more than $75,000 and singles earning more than $50,000 would be $200 billion, yet the researchers estimate this group is only likely to spend $15 billion of that money — about 7 percent.
The initial round of $1,200 stimulus checks in the spring saw some increase in spending across all income levels, Friedman and Chetty say, but this second stimulus is revealing a wide gap. That’s likely because the recession is largely over for the rich, while poorer households are still deep in a recession. The Federal Reserve says unemployment for low-wage workers is still hovering around 20 percent — a near depression-like state.
“We’re seeing a pretty similar effect in how low-income households spent the stimulus in the first and second rounds and a smaller spending impact for high-income households,” said Friedman. “Low-income households have suffered by far the biggest economic shock. They need the help the most.”
Their findings are backed up by other surveys and analyses of how people used their first stimulus payments. The U.S. Census found households with incomes between $75,000 and $100,000 “were more likely to use their stimulus payments to pay off debt or to add to savings, compared to households overall.” In contrast, nearly 88 percent of households with less than $25,000 intended to spend the stimulus.
Andrew Rafner, 32, has been unemployed since mid-March in Los Angeles. A comic book aficionado, Rafner worked at a comic book store where dozens of customers became friends. Rafner and his girlfriend have struggled to pay bills at times. The stimulus check he just received was a lifeline for food and rent.
“It’s been nice to go to grocery store and not really have to worry about what to eat,” Rafner said.
Stimulus checks to Americans earning over $75,000 provide little benefit to econ…