coronavirus

Some $1,400 Stimulus Checks Went to People Who Didn't Need Them. Experts Say That May Be OK

Grace Cary
  • The IRS has issued $1,400 stimulus checks to about 127 million households so far.
  • The American Rescue Plan cut off payments for adults earning more than $80,000 and married couples with income above $160,000.
  • Some believe those limits are too high. Others say there are sound policy reasons for the limits in the $1.9 trillion Covid relief bill.

Washington has issued stimulus checks to about 127 million households over the past two weeks.

Some payments went to those who didn't need the money. But that's not necessarily bad — the answer largely depends on one's view of check targeting and how easily that can be achieved.

The concept of trying to target stimulus checks boils down to the uneven pandemic recovery — the so-called K-shaped economy.

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Those who continue to struggle should get payments; those who've recovered or better shouldn't, the thinking goes.

In a sense, it's impossible to perfectly target checks with a national policy, based on tax-return data that can't capture rapid shifts in household circumstances, experts said.

But income thresholds are the best way to target for economic pain and speedily deliver aid, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

The American Rescue Plan gave $1,400 checks to single adults who earn up to $75,000. Partial checks went to people with $75,000 to $80,000 of income. (The thresholds are double for married couples.)

Families also get extra payments for dependents. A family of four, for example, stands to get up to $5,600.

Targeting $1,400 stimulus checks

Opponents believed the income caps should have been lower. A group of moderate Republican senators proposed $40,000 as a full-payment cutoff, for example.

That's because job loss has been concentrated among low-wage workers. In other words: higher earners who get a check tend to have a job and wage income right now, statistics show.

Employment for those making less than $27,000 a year was down 29% at the end of February relative to pre-pandemic levels, according to Opportunity Insights, a project run by Harvard University and Brown University economists.

Jobs among the next tier of workers, making up to $60,000, are down more than 6%. Meanwhile, higher earners are at break-even.  

Cutting off $1,400 checks at $60,000 of income for single adults (and double for married couples) would have reduced eligibility by almost 9 million households, to a total 153 million, according to an estimate from Kyle Pomerleau, a resident fellow at the American Enterprise Institute, a conservative think tank.

Home and stock prices have also ballooned — meaning the wealthy, who disproportionately own such assets, are likely reaping financial rewards and likely don't need stimulus money, according to proponents of better targeting.

They're also more prone to save the cash than spend it to stimulate the economy.

The IRS began issuing a second round of direct payments — $600 checks — in early January. Spending among low earners (household income below $46,000) had swelled 24% by Jan. 10, according to Opportunity Insights. On the other hand, households earning more than $78,000 spent about 1% more.

They may, however, spend down that savings when the economy re-opens more fully.

Some opponents didn't believe stimulus checks were necessary at all, since extra unemployment benefits in the American Rescue Plan already funnel aid to those who lost job income.

Holes in the safety net

But that's not the whole story.

For one, Democrats and the White House did somewhat target the checks.

The American Rescue Plan phased out check eligibility after $80,000 of income for single adults, down from $100,000 in the prior two federal relief measures.

The concepts of targeting and stimulus checks also don't necessarily mesh.

About 90% of households got a CARES Act stimulus check, said Pomerleau of the American Enterprise Institute. Even with a lower phaseout range, nearly 85% of households are eligible for $1,400 checks, he said.

"I don't think there's a really strong case to target the checks," Pomerleau said. "One argument against [it] is you really can't do it."

Their primary objective was to issue money quickly and to plug any gaps in the social safety net, he said.

Lowering income thresholds could also overlook some ailing households.

For example, some higher earners may have lost hours (but not their jobs) during the pandemic downturn. They may not have qualified for unemployment benefits — or any extra jobless aid doled out over the past year, for example.

In February, the number of people who wanted a full-time job but were working part-time was up almost 2 million versus pre-pandemic levels, according to the Bureau of Labor Statistics.

Plus, the IRS is using 2019 tax returns to determine eligibility, if the agency hadn't yet processed a 2020 return.

Those older returns may show a higher, pre-layoff income that doesn't accurately reflect a household's current financial situation, 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 catch-all for Americans in this scenario, she said. The IRS has yet to process more than 2 million tax returns received prior to 2021, according to the agency.

"The law is presuming people need the money," Holtzblatt said. "People may have lost their jobs in 2020, but the IRS [may not] know their circumstances."

The concept also fits with a guiding principle of the Biden administration when it crafted the $1.9 trillion rescue plan: that doing too much is better than doing too little, as it believes occurred after the Great Recession.

The $75,000 income threshold in the American Rescue Plan was also the same as the December rescue package ($600 checks) and the CARES Act before it ($1,200 checks). Those caps, in turn, mirrored those used during the Great Recession more than a decade ago.

Keeping similar legislative language lent to speedier check delivery, Holtzblatt said.

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