As Congress continues to negotiate over the $1.9 trillion stimulus package, a group of bipartisan lawmakers has proposed more limited payments by lowering the income threshold for who gets the full $1,400 benefit.
Their proposal would begin phasing out the benefit for individuals earning over $50,000 and married couples earning more than $100,000. Previous stimulus checks had phaseout thresholds at $75,000 per individual and $150,000 per household.
Several members of Congress, from both parties, have argued for sticking to the original targeting. President Joe Biden, meanwhile, has signaled he’s open to revisiting the income thresholds, and on Sunday, Treasury Secretary Janet Yellen broached the idea of restricting checks to those making $60,000 or less per year.
Then, on Monday night, House Democrats on the Ways and Means Committee released their proposal: a $1,400 benefit that would pay out along the same lines as the first two stimulus checks, but with one difference. No individual earning more than $100,000 would get a check, and no couple earning more than $200,000 would get a check. The following morning, White House press secretary Jen Psaki announced Biden’s support for this measure in response to a question from CNN’s Kaitlan Collins.
"We're just trying to make sure that people are truly in need, ok, so if they can show that $75,000, $150,000 are truly in need, it's basically, they have adjusted gross income that's how people get up to 250, 300. They want to solve that and put a hard stop. A hard stop. "— Erica Werner (@ericawerner) February 8, 2021
But the debate may not be over. Many of those advocating for more targeted aid say it is important to limit checks to lower-income people, whom they see as most likely to spend the money quickly to help stimulate the economy and are also more likely to need it to meet everyday expenses.
The recovery from the Covid-19 recession has been unequal. Higher-income Americans have been largely insulated from job losses, homeowners have seen wealth grow, and personal savings have increased over the course of the pandemic (in part as a result of previous stimulus measures). This has sparked concern among some lawmakers that the third round of checks should be more targeted so they don’t go to families who are already financially secure.
But at the heart of the political debate is something less academic and more visceral: Who do lawmakers, and their constituents, think deserves a third stimulus payment?
In a Vox/DFP poll, 60 percent of Americans supported means-testing the stimulus checks, agreeing with the statement: “Checks should be phased out based on income so higher-income people receive less money.” Opposition to the wealthy receiving financial assistance from the government isn’t surprising, but the popularity of means-testing this benefit helps explain why there’s such a fierce debate raging over what will likely be a relatively small part of Biden’s final package: Lawmakers and their constituents want “fairness,” even if they have a hard time defining what that is.
The economic debate over targeting the checks
At the center of the economic debate over the stimulus checks is the question: What are the $1,400 payments for?
These payments have commonly come to be known as “stimulus checks,” though their official name is Economic Impact Payments. So the question of who will use the money to positively affect the economy by immediately spending it has dominated the debate.
The Covid-19 recession is not like a normal recession — in many places, broad swaths of businesses are closed or have limited capacity. Even where they are open, many kinds of in-person economic activity, like dining indoors, attending large events, or browsing in crowded stores, are risky. Thus, many people are independently choosing to avoid the very types of economic activity that are needed for stimulus to work.
Some economists, like Noah Smith, have argued that we should instead think of stimulus payments as social insurance. The goal of these payments could be to help those who have suffered financially in unseen ways but maybe weren’t laid off (e.g., took a pay cut at work, have to pay increased child care costs, have coronavirus-related medical expenses, quit their job to take care of their kids, etc.) and to make it less terrible to stay home during the pandemic and keep yourself away from your friends and family.
Other economists — and many lawmakers — do not see the checks this way. They talk about them as “stimulus checks” meant to stimulate the economy by getting people to spend more. And part of the political viability of programs like these is proving that there’s a macroeconomic payoff.
In an analysis by Opportunity Insights, a research and policy institute based at Harvard University, researchers Raj Chetty, John Friedman, and Michael Stepner recommend “targeting the next round of stimulus payments toward lower-income households would save substantial resources that could be used to support other programs, with minimal impact on economic activity.” Their findings indicated that people with incomes greater than $78,000 spent only $45 of the $600 payment sent out in the second round in January.
This research has made the rounds on Capitol Hill, one senior Democratic aide told Vox, who spoke of the popularity of a Washington Post article that reported on the findings with the headline: “Cutting off stimulus checks to Americans earning over $75,000 could be wise, new data suggests.”
But some economists are pushing back for a few reasons.
First, there are questions over the data. Opportunity Insights is looking at spending within zip codes, not household data. That means the researchers aren’t actually comparing higher-income and lower-income people, they’re comparing zip codes with residents whose average incomes are above $78,000 with those below $46,000. Thus, the within-zip code variation could be clouding their results.
Friedman, one of the researchers and a Brown University economist, argues that variation within zip codes actually supports their hypothesis. He told Vox that in the top 25 percent of zip codes by median income, half of households in zip codes make less than $74,000. Since they observe such a small increase in spending following the distribution of the $600 checks, Friedman believes that lower-income residents are the ones who are actually driving spending in wealthier zip codes.
The spending data comes only from consumer credit and debit card information. That means they have no record of cash payments or payments made by check. And the data also doesn’t track paying down debt like student loans, car payments, back-rent, or mortgage payments.
Friedman agreed this type of spending is valuable, but pointed out that payments that go toward servicing debt don’t have the direct stimulative effect that buying clothes, food, or other goods and services would.
There’s also a debate about whether the income and ultimately spending the payments are really as tightly linked as the Opportunity Insights data suggests. Claudia Sahm, an economist who has worked at the Federal Reserve and the Council of Economic Advisers, argued against new income restrictions, pointing to studies that find a stronger connection with liquidity (essentially, cash on hand) than income.
“You could have a family earning $150,000 before the crisis and they could be earning $102,000 now ... a $50,000 drop in income is a big hole,” Sahm told Vox. “Now, my heart might not bleed for them in the same way that it does for a single mom with three kids ... but the reality is both of them cannot miss a paycheck without causing problems.”
Jonathan Parker, an economist at MIT, emphasized this point in an email, adding that Opportunity Insight’s research “does not answer the question as to whether higher-income people spend over a month instead of a few days”: People could be putting aside that money to spend later, for instance when there is mass vaccination. But he still argued against sending payments that aren’t strictly targeted to those with the greatest need.
“The typical household has more income and more wealth than before the pandemic began,” he wrote. “Even in aggregate, average income is up. Average and median account balances are up. ... Credit card debt in aggregate is way down. The typical American is in great financial shape.”
Friedman emphasized that the economy will rebound quickly when the Covid-19 outbreaks are under control. “Once the public health situation recovers, my instinct is that the economy will snap back pretty quickly given how much extra savings people have,” he told me. “I’m not sure sending everyone a $1,400 check will make that much of a difference.”
This is where the academic debate collides with the political one. Lawmakers have neither the information nor the state capacity to perfectly target aid in the way that Opportunity Insights would prefer (and there’s extensive research that putting requirements on people to “prove” they need the money harms the people who need it most).
The political debate over targeting the checks
The political debate over fairness is a subset of a larger debate over whether Biden’s $1.9 trillion stimulus package is too big.
Much of the Republican caucus says it is, and this question became the center of chatter among economists, the White House, and Congress after former Treasury Secretary Larry Summers wrote an op-ed in the Washington Post warning that the size of the package could cause inflation and reduce future spending on important priorities from “infrastructure to preschool education to renewable energy.” Vox’s Emily Stewart has covered this debate extensively.
But if the problem really is that Biden’s plan is too big, it does not appear that limiting who gets stimulus checks would make it much smaller. The proposal floated by some Democrats to limit check eligibility to individuals making under $50,000 and couples making under $100,000 would only save around $45 billion, according to reporting from the Washington Post. (Opportunity Insights estimates that limiting the checks to households earning $78,000 or less would save $200 billion, but that still leaves a very sizable stimulus package for those worried about inflation.) Republicans have gone further, proposing reducing the benefit to $1,000 as well.
More than the deficit, what appears to be behind the “too big” debate is an age-old question about fairness. Last week, the Senate voted 99-1 in favor of a nonbinding amendment put forth by Manchin to “ensure upper-income taxpayers are not eligible” for $1,400 checks. The amendment didn’t define upper income, but Manchin is one of the co-sponsors of a bill to begin phasing out the benefit at $50,000.
No lawmaker wants to be seen as being on the side of the wealthy, or giving the “wrong people” money when so many are struggling, but the optics of the debate are threatening to overwhelm the actual policies being put forth. The real policy debate should be whether a person earning $51,000 should get the full benefit.
There is no reason the federal government should be sending stimulus checks to families making upwards of $300,000.— Rob Portman (@senrobportman) February 3, 2021
#COVID19 relief needs to be targeted at those folks who need it the most.
Key Democratic leaders have suggested that they are open to some level of targeting. Sen. Ron Wyden, chair of the Finance Committee, has signaled his desire to keep the checks at the current level, telling reporters, “I’m always willing to listen, but I’m opposed to it,” when asked about lowering the income threshold.
And Biden has made it clear that he feels Democrats owe Americans checks, after promising further direct aid if the party won both Senate seats (and control of the Senate) in Georgia’s January special election.
Biden, in a call with House Democrats early last week, said: “We can’t walk away from additional $1,400 in direct checks we proposed because people need, and frankly, they’ve been promised it. Maybe we can — I think we can better target that number. I’m okay with that.”
But targeting will have consequences — including, perhaps, electoral ones. Sahm has estimated that if Democrats choose to lower the threshold to what Manchin and others are suggesting, roughly 40 million Americans who received the previous two checks will not receive one this time.
“It’s the most visible part of the relief package,” one senior Democratic aide told Vox. “You may not see the spending on vaccines or on state and local aid, but if you’re expecting a check and don’t get one, you’ll know.”
Ella Nilsen contributed reporting to this story.