Washington Wednesday – Measuring the stimulus bill benefit

MEGAN BASHAM, HOST: It’s Wednesday the 29th of July, 2020.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Megan Basham.

MARY REICHARD, HOST: And I’m Mary Reichard. 

Before we get going, a quick note about our new Legal Docket series! Very exciting, it’s happening, and it will launch this week. But as sometimes happens, technical glitches mean it’s not yet showing up on all the podcast platforms. It will, eventually. So keep looking, and know we will present it on the World and Everything in It feed on Saturday, in case you miss it.

BASHAM: OK, excited to hear episode one! 

First up: another round of COVID-19 stimulus. 

The largest COVID-19 relief package passed in March — the CARES Act. It involved some of the partisan wrangling you might expect, but by and large, lawmakers agreed they needed to do something quickly. And it had to be big. This time around, that consensus is gone.

SCHUMER: If you lost your job, you can’t get to work. The administration has bungled this crisis. And now they want to take $1,600 dollars out of your pocket every single month. Blaming the victim.

REICHARD: Unemployment benefits are a major sticking point. Right now the federal government is paying unemployed Americans $600 per week on top of what they’re getting from state unemployment. Democrats want to extend the big extra benefit, as is, through the end of the year. They say people who lost their jobs need that money to survive.

BASHAM: Republicans say it is disincentivizing work. They want to cut the extra unemployment benefit to $200 dollars per week for 60 days, or until states can provide workers 70 percent of what they made before getting laid off. They say that will encourage people to go back to work and help jumpstart the economy.

REICHARD: But the Republican proposal does not cut back on stimulus payments sent to a majority of American families. Most people would get another $1,200 dollar check in the mail, whether they need it or not. Those payments were designed to offset costs related to the pandemic and bolster the retail sales number. But did they work?

Angela Rachidi is a research fellow studying poverty for the American Enterprise Institute. She analyzed the data and joins us now to talk about what those numbers tell us. Good morning, Angela! Thanks for joining us.

ANGELA RACHIDI, GUEST: Good morning, nice to be with you.

REICHARD: Let’s talk about how people used those $1,200 dollar payments, starting with households making more than $75,000 dollars a year. What did they do with their stimulus checks?

RACHIDI: We were able to look at census data. So this is survey data where people were asked exactly how they used those payments. And what we found is that households that did have income over $75,000 per year, about half of them used it to meet their daily expenses with the roughly other half using it to pay down debt or to add to their savings. 

And we saw a very different pattern among those higher or middle and higher income families than what we saw among low income families—where the low income family, lower income families overwhelmingly used those payments to meet their daily expenses and spent very little of it to pay down debt and contribute to savings.

REICHARD: You’re talking about households making less than $75,000 dollars a year. Clearly the economic shutdown affected them differently.

RACHIDI: Yes, so we know from the data that the employment disruptions that were experienced by so many households after the start of the pandemic was though primarily experienced by lower income households. And so the employment disruption, so this is when people say that they had some loss of employment related income, we see rates of like 60 percent among the lowest income households, and roughly half of those that we think of as kind of middle income. And then as you go up the income scale that employment disruption is really reduced.

So we know that those employment disruptions were concentrated among lower income households. And then we know from the data about how they use those payments, which makes sense because they experienced so much employment income disruption, they overwhelmingly used those payments to meet their daily expenses.

So it’s kind of really two, two pronged is one, those low income households are in a worse position any way to afford or to have the resources they need to meet their daily expenses just by the nature of being lower income. But then it was kind of a double whammy, because they also then experienced employment disruptions at a much higher rate. So it’s not surprising that they used those economic stimulus or economic impact payments for expenses. But the data really show that that was very much true and clearly show that there was a need among those households for those payments.

REICHARD: Based on that data, how should Congress structure this next stimulus package?

RACHIDI: Sure, I mean, the big concern about those stimulus payments is that they are mistargeted, that they’re going to households who don’t really need them. And by don’t need them, it means they didn’t experience any income loss to employment disruption. They haven’t really had any other reductions in income coming into the household. 

And so the question is, why should they receive government assistance if they have, if they were not experiencing any hardship? So then the question becomes, well, if we want to avoid that, how do we then target them appropriately? 

And so what I’m hoping Congress is thinking about and we’ve seen a little bit of this already, is trying to target those payments to not only the households that are likely experiencing hardship right now, because they traditionally have been lower income, but also to the households that have disproportionately been affected by employment disruptions. 

And so again, when we look at the data, we see that those really are the lower income households. And it’s borne out in the data by how they spent those original payments in they spent those payments to meet their daily expenses.

REICHARD: Republicans don’t want to extend the $600 dollar a week boost to unemployment benefits because they say it motivates people to stay out of the workforce. A disincentive to work. Do they have data to back that up?

RACHIDI: There, there’s quite a bit of literature on just unemployment insurance in general. And it does show that as the payments get higher, it does disincentivize work, which makes sense. I mean, any rational person, if you can make more not working, you’re gonna do that and you have no incentive to go, or I shouldn’t say no incentive, you have less incentive to go and find employment. So I think it makes sense to really think about what the appropriate level of unemployment insurance is.

I think that the stimulus payments or the economic impact payments can be a nice complement, though, to reducing unemployment insurance. And the reason I say that is if the if the lower income households are still experiencing unemployment, and they had been getting that $600 extra weekly check, and that now is reduced in order to try to encourage them to get back into the labor market, any hardship that they might experience from that reduction in unemployment insurance can be offset by an economic impact payment. 

And so I think that really getting this right in terms of who should we target the economic impact payments to and how should we properly structure unemployment insurance—if they can get those two pieces right, it can avoid a lot of hardship among those lower income families.

REICHARD: Well, Angela, finally here, from a poverty-fighting perspective, what else could Congress do to help families struggling now?

RACHIDI: I think that really taking a look at the different safety net programs and how can they meet both the short term economic needs of families that are struggling because they’re not employed. But how can they match that to incentives to get them quickly back into the labor market. And ultimately, it does come down to public health issues. If we can get a control over this disease, get the economy back moving, those jobs will be available for people and they can get back to work.

REICHARD: Angela Rachidi researches poverty for the American Enterprise Institute. Thanks so much for joining us today!

RACHIDI: Thanks for having me.

President Donald Trump’s name is seen on a stimulus check issued by the IRS to help combat the adverse economic effects of the COVID-19 outbreak. (AP Photo/Eric Gay, File)

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