Stimulus checks should target poorer Americans, Harvard researchers say

As Democratic lawmakers move forward with sending a third stimulus check to most Americans as part of a broader coronavirus relief package, new research suggests the money would be most effective at boosting the U.S. economy if it targeted lower-income Americans.

Economists at Opportunity Insights, a nonpartisan policy institute based at Harvard University, found that when the government sent out $600 checks as part of the $900 billion relief package Congress approved in December, spending among households making less than $46,000 rose 7.9% from Jan. 6 to Jan. 19 compared to the year-ago period.

By comparison, spending inched up just 0.2% for households making more than $78,000.

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"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," the researchers wrote.

The economists estimated that just $45 of the $600 payment would be spent by higher-income households — unlike the $1,200 stimulus payment that Congress passed in March with the $2.2 trillion CARES Act.

Because the first batch of checks arrived when unemployment was surging nationwide – it soared to 14.7% in April – Americans across the board, regardless of income levels, were more likely to spend the money. But since then, wealthier households have largely returned to work and have even accrued additional savings, the researchers said.

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Based on that data, the economists projected that households earning more than $78,000 would only spend $105 of the $1,400 check promised by President Biden. At a macro level, that means the federal government could spend $200 billion, but only see an increase of $15 billion in spending.

Congress has already spent some $4 trillion on pandemic relief measures, including $900 billion approved at the end of December. Although lawmakers broadly agree that another round of emergency aid is needed, they disagree over the size and scope of it, with deficit-weary Republicans sounding the alarm about the price tag.

"The economy is on its way to recovering," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said. "More funding is warranted to assist those out of work because of the pandemic, prevent state and local government layoffs, boost economic demand, prevent a decline in household incomes, and end this pandemic once and for all. But it shouldn't take $1.9 trillion to fill a $400 billion or $800 billion hole."

While still unclear what the framework for stimulus check eligibility looks like, if it followed a formula in House-passed legislation last year, the $1,400 stimulus checks would taper off for individuals who earn $75,000 more a year and families making $150,000 or more. But the phaseout level increases for families with more children, meaning that a family with multiple children earning more than $300,000 a year could theoretically receive some money, even if they have not suffered a financial setback during the pandemic.

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Biden told reporters last week that he is open to negotiating the income limits for the money, and has reportedly discussed a proposal with senior Democrats of lowering the threshold for the payments to begin phasing out above $50,000 for single taxpayers, $75,000 for people who file as the heads of households, and $100,000 for married couples, according to The Washington Post.

"There is legitimate reason for people to say, 'Do you have the lines drawn the exact right way? Should it go to anybody making over X number of dollars? I'm open to negotiate those things,'" Biden told journalists during an executive order signing last Monday.