Americans May Largely Save Their Aid Checks: Stimulus Update

(Bloomberg) -- Nearly three-fourths of the relief-check payments proposed in President Joe Biden’s stimulus plan would be saved rather than spent, at least in the short term, according to a new analysis.

The Senate on Tuesday began a process that would let Democrats pass President Joe Biden’s $1.9 trillion stimulus without Republican votes. The House is expected to vote on a similar move later on Wednesday, with Biden set to address House Democrats this morning on the proposal and then meet with Democratic senators in the Oval Office.

Senate Majority Leader Chuck Schumer said Tuesday that the process, known as reconciliation, is open to GOP participation and that the stimulus package can still be tweaked with their input. But he said Democrats won’t risk moving slowly or timidly to bolster the economy.

Most Stimulus Funds Would Go to Savings, Penn Analysis Finds

Nearly three-fourths of the relief-check money proposed in President Joe Biden’s stimulus plan would be saved rather than spent this year, according to an analysis Wednesday from University of Pennsylvania researchers.

The Penn Wharton Budget Model initiative analyzed a variety of data, including previous estimates of spending and government figures on consumption and savings from 2019 to the third quarter of 2020 -- a period that includes the initial recessionary shock from the coronavirus and the bounce-back in spending following government stimulus.

The proposed $1,400 relief checks “will flow largely into household savings and will produce only small stimulative effects,” the report said. “Sectors affected by the pandemic still face restrictions and are unlikely to grow from stimulus payments.”

The researchers also said that even after the pandemic ends and Americans can resume normal activities, they aren’t likely to accelerate spending beyond the pre-recession period.

The findings underscore some of the criticism that Biden’s stimulus plan has faced mainly from Republicans, who balk at the cost and size. It also highlights the challenges of predicting outcomes in the pandemic-induced recession that continues to keep people at home.

A separate report from the Penn researchers said that those in the bottom half of incomes are more likely to spend, a finding similar to other research. The bottom 80% of income earners would receive the majority of the benefits from checks and other direct support, including child tax credits, the analysis showed.

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