About $ 1,400 in stimulus checks went to people who didn’t need them. Experts say that may be okay
The American rescue plan gave single adults earning up to $ 75,000 US $ 1,400 checks. Partial checks were made to individuals with incomes between $ 75,000 and $ 80,000. (The thresholds for married couples are double.)
Families also receive additional payments for dependents. For example, a family of four can earn up to $ 5,600.
The goal is stimulus checks worth $ 1,400
Opponents believed that the income caps should be lower. For example, a group of moderate Republican senators suggested $ 40,000 as a limit on payment in full.
This is because job loss has been concentrated on low-wage workers. In other words, high earners who receive a check currently tend to have a job and wage income, statistics show.
I don’t think there’s a really strong reason to target the checks. One argument against it [it] is that you really can’t.
Resident Fellow at the American Enterprise Institute
Employment for those earning less than $ 27,000 a year fell 29% from pre-pandemic levels at the end of February, according to Opportunity Insights, a project by economists at Harvard University and Brown University.
Jobs in the next tier of workers, earning up to $ 60,000, have declined more than 6%. In the meantime, higher earners are more balanced.
According to an estimate by Kyle Pomerleau, a fellow at the American Enterprise Institute, cutting 1,400 checks on $ 60,000 income for single adults (and double that for married couples) would have reduced eligibility by nearly 9 million households to a total of 153 million , a conservative think tank.
Home and stock prices have also risen – meaning the wealthy who disproportionately own such assets are likely to receive financial rewards and, according to advocates of better targeting, are unlikely to need stimulus money.
They are also more inclined to save money than to spend it to stimulate the economy.
The IRS began issuing a second round of direct payments – $ 600 checks – in early January. According to Opportunity Insights, spending on low-income earners (household incomes less than $ 46,000) had increased 24% through Jan. 10. On the flip side, households that earned more than $ 78,000 spent about 1% more.
However, you will be able to spend less of those savings when the economy opens fully again.
Some opponents did not believe that stimulus checks were even necessary, as additional unemployment benefits in the American Rescue Plan are already providing assistance to those who have lost their work income.
Holes in the safety net
But that’s not the whole story.
For one thing, the Democrats and the White House have somewhat targeted the controls.
The American Rescue Plan phased out eligibility for screening for single adult income of $ 80,000, down from $ 100,000 in the previous two federal relief efforts.
The concepts of targeting and stimulus checks do not necessarily interlock either.
About 90% of households received a CARES Act stimulus check, said Pomerleau of the American Enterprise Institute. Even with a lower exit area, nearly 85% of households are eligible for checks for $ 1,400, he said.
“I don’t think there’s a really strong reason to target the checks,” said Pomerleau. “One argument against it [it] is that you really can’t. “
Their primary goal is to be able to spend money quickly and close loopholes in the social safety net, he said.
Lowering the income thresholds might also overlook some sick households.
For example, some higher earners may have lost hours (but not their jobs) during the pandemic downturn. They may not be entitled to unemployment benefits – or, for example, additional unemployment benefits that were granted in the past year.
In February, the number of people who wanted a full-time job but worked part-time rose nearly 2 million from pre-pandemic levels, according to the Bureau of Labor Statistics.
Additionally, the IRS uses 2019 tax returns to determine eligibility if the agency has not yet processed a 2020 return.
These older returns may have higher pre-layoff income that doesn’t accurately reflect a household’s current financial health, said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
That uncertainty is an argument in favor of broader eligibility for checks – as a panacea for Americans in this scenario, she said. According to the agency, the IRS has not processed more than 2 million tax returns received prior to 2021.
“The law assumes that people need the money,” said Holtzblatt. “People may have lost their jobs in 2020, but the IRS did [may not] know their circumstances. “
The concept also fits in with a guiding principle used by the Biden government in drawing up the $ 1.9 trillion bailout plan: To do too much is better than to do too little, as was believed after the Great Recession.
The US $ 75,000 income threshold in the US bailout was also the same as the December bailout package (US $ 600 checks) and the CARES Act before it (US $ 1,200 checks). These caps, in turn, mirrored those used during the Great Recession more than a decade ago.
Holtzblatt said similar legislative language would be maintained for faster check delivery.