President Biden’s push for more direct payments is sparking a debate over what the income thresholds should be for the stimulus checks.
Many Republicans and some centrist Democrats say any additional payments need to be more targeted toward lower-income households, arguing they are most in need of relief and are more likely to spend the money quickly, providing a boost to the economy.
On Sunday, a group of 10 GOP senators made that argument in a letter to Biden announcing their own coronavirus relief proposal, one that includes payments “for those families who need assistance the most, including their dependent children and adults.” The senators are now slated to meet with Biden on Monday to discuss coronavirus relief.
Progressives, meanwhile, insist that broad eligibility would ensure the money gets out the door swiftly, while providing help to people whose income has dropped during the coronavirus-induced recession.
Biden has signaled he is open to discussing income limits for additional checks in his $1.9 trillion coronavirus relief package. The wide-ranging proposal does not specify any income eligibility requirements for new $1,400 payments.
“There’s 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 or Y?” the president said last week. “I’m open to negotiate those things.”
In the two rounds of direct payments that were authorized by Congress last year, individuals with income up to $75,000 a year and married couples with income up to $150,000 were eligible for the full amount. The payments were incrementally phased out for higher earners.
The right-leaning Tax Foundation has estimated that more than 90 percent of households that file tax returns were eligible for both rounds of payments. People who don’t file tax returns typically have lower incomes.
According to IRS data, about 15 percent of the funds from the first round of checks went to households with annual income of $100,000 or more from recent tax years.
The president’s proposed relief package has quickly met resistance from Republicans, who are concerned about the overall price tag and have questioned why another large bill is needed after Congress passed a $900 billion measure in late December. Stimulus checks are likely to account for a significant chunk of the measure pushed by Biden.
The relief package that the 10 Senate Republicans are planning to put forth is expected to cost around $600 billion — less than one-third of Biden’s proposal — and is likely to include direct payments of $1,000 rather than $1,400, Sen. Bill Cassidy (R-La.) said on “Fox News Sunday.”
Sen. Rob Portman (R-Ohio) indicated in an interview on CNN’s “State of the Union” that the income recipient thresholds would be $50,000 for individuals and $100,000 for married couples.
“Let’s focus on those who are struggling,” Portman said.
Other Republicans backing the new proposal include Sens. Susan Collins (Maine) and Mitt Romney (Utah).
White House economic adviser Brian Deese told CNN on Sunday that the White House was reviewing the letter from Senate Republicans and that the administration is open to targeting its proposed $1,400 checks.
But Republicans might not have much influence over the next coronavirus relief bill.
In light of GOP resistance to Biden’s relief plan, congressional Democrats have signaled they’re prepared to use the budget reconciliation process so that they can pass the measure with a simple majority in both chambers.
But a reconciliation bill that has no support from Republicans would need support from every Democratic senator to advance. Sen. Joe Manchin (D-W.Va.) has indicated his preference is for targeted direct payments.
“I’m not against any checks going to anybody that we can help. Get it to the person that needs it. Target it and help the people that need help,” he told CBS affiliate WOWK in Charleston on Jan. 22.
Some economic policy experts argue that tightening the income eligibility requirements makes sense because higher-income households are less likely to spend the payments.
An analysis published last month by Opportunity Insights, a nonprofit based at Harvard University, found that the second-round payments of up to $600 per person distributed in January had little impact on consumer spending among higher-income households — those living in ZIP codes where the average household income is above $78,000 — but had a noticeable impact on spending for other households.
John Freidman, a professor at Brown University and co-founding director of Opportunity Insights, said the recent analysis differed from the group’s findings about the first round of payments in April, when unemployment was higher and all income groups were spending the checks. Under the first round of payments, households received up to $1,200 per adult and $500 per child.
New figures from the Commerce Department last week showed that consumer spending declined in December for a second straight month, even as personal income rose.
Freidman said that targeting a new round of checks more toward lower- and middle-income households could be an efficient way to trim the stimulus package.
“I don’t think you would give up much in terms of the economic impact of the stimulus,” he said.
Other economists, as well as progressive lawmakers, say there’s value in providing additional direct payments to a large swath of the population.
Claudia Sahm, a former Federal Reserve economist who is a proponent for robust coronavirus relief, said some studies show that people without much in savings tend to spend more of their stimulus payment money than others. Many upper-middle-class households do not have much in savings because they have large mortgage payments and are paying for their children’s college tuition, so they may be likely to spend stimulus money they receive, she said.
She also said direct payments help people who are in need but are not receiving other forms of assistance: those who have lost income due to the pandemic but are not eligible for unemployment benefits, and people who don’t take advantage of social safety net programs that are available to them.
“These checks circumvent all kinds of administrative barriers,” Sahm said.
Many congressional Democrats point out that check recipients are getting these payments based on their 2018 and 2019 incomes, and those figures are more likely to have gone down in the past year due to the pandemic.
“I’m willing to address senators’ concerns, but it’s important to remember that the relief payments phase out and they are based on your income from before the pandemic,” Sen. Ron Wyden (D-Ore.), the incoming chairman of the Senate Finance Committee, said in a statement to The Hill.
The executive board of the Congressional Progressive Caucus warned Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles Schumer (D-N.Y.) in a letter on Wednesday against “an overemphasis on targeting aid.”
Progressive Caucus Chairwoman Pramila Jayapal (D-Wash.) said on a call with reporters the following day that “if you target too much, it becomes harder to get relief out quickly.”
But beyond the economic debate over income eligibility, Biden will need to take into consideration what makes the most sense politically.
Michael Strain, director of economic policy studies at the right-leaning American Enterprise Institute, said many Senate Republicans are tired of spending money on the pandemic.
If Biden muscles through a relief package now with broad-based direct payments, Strain argued, it could be harder for the president to enact subsequent pieces of legislation that also come with hefty price tags.
Direct payments that go to higher-income households would be both “a wildly imprudent and irresponsible use of tax dollars” and an unwise use of Biden’s political capital, Strain said.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, whose director is temporarily working in Biden’s Treasury Department, said it’s unclear whether more lawmakers would support a wide-ranging relief package if there were targeted $1,400 direct payments. Lowering the income limits for the checks would not substantially lower the cost of the overall package, he said.
“It’s a symbolic move, it’s an economically smart move, but I don’t know that it will be enough to bring along 10 Republicans in the Senate,” Gleckman said.