As Congress is considering a third major COVID-19 stimulus plan, a major issue is who should get the direct payments and how big they should be.
In the first two rounds of stimulus checks – $ 1,200 last spring and $ 600 in December – nearly all Americans were eligible for the handout.
This made sense in the beginning, as the economic crash that caused the pandemic was so rapid and severe that there was no time to try to target the aid. The idea, like during the Great Recession a decade ago, was to throw as much money as possible into the economy as quickly as possible to avoid a total collapse.
However, enough time has passed since the outbreak of the pandemic for the aid to take a more focused approach: not just to cut costs (the country has already spent $ 4 trillion in mostly borrowed money on coronavirus relief) but also to get this the biggest bang out of the investment.
A group of moderate Republicans met with President Biden to discuss their alternative: instead of the $ 1,400 the president wants to give most adults, the GOP plan provides $ 1,000 per adult for single people, up to 40,000 Earning US Dollars, and Married Couples Earning up to $ 80,000. After that, the benefit would diminish, and those who make $ 50,000 or more (or $ 100,000 for a couple) will no longer get anything.
That change alone would save nearly $ 400 billion from the president’s $ 1.9 trillion plan.
In addition to the savings, most economic studies show that targeting incentives for those on the lower end of the earnings spectrum brings the greatest return on economic growth. As the first two rounds of stimulus checks have shown, lower-income individuals spend the money quickly paying bills and other necessities, while higher-income individuals save the money because they mostly keep their jobs. Households earning more than $ 78,000 a year were only spending $ 45 of the $ 600 stimulus check in December, according to estimates by Opportunity Insights Economic Tracker, a nonprofit research group of economists.
Applying the same spending-to-savings ratio to the administration’s recommendation leads to the following conclusion: It would cost the government $ 200 billion to give 1,400 checks to the same households, but only $ 15 billion would soon be in the economy reach. Bad return on investment.
Of course, few Americans will not take it while the government is distributing « free » money. However, that help should now be reserved for those who need it most: those who have lost their jobs or whose income has plummeted.
On this point the Republican alternative makes more sense than the President’s plan.
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