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I read an article "A breakdown of the fiscal and monetary responses to the pandemic" and noticed most direct cash payments depended on each person's income, unemployment, or dependent family members, but not on their asset size. Correct me if I'm wrong, but if I understood correctly, rich people without any income can also get the benefits. This is also the case in South Korea.

I'm sure there are some reasonable reasons behind this, but what would it be?

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    @JonathanReez why shouldn't foreign citizens - that live and pay taxes in USA - get the benefits? Jul 28 at 11:36
  • @ypercubeᵀᴹ removed my comment. What I was trying to say is - people who are foreign citizens and already moved out of the US still got paid. I.e. students who worked in the US in 2018 and since moved out. Jul 28 at 15:31
  • Do you want to penalize people for having good savings habits?
    – NomadMaker
    Jul 29 at 20:25
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    @NomadMaker I don't want to paint as if I'm against saving or wealth. Many choices have trade-offs, and as I mentioned in my question, I knew there were some trade-offs that I don't know. I'm "asking" what are the trade-off and why is one method is chosen above else. And I'm asking because I don't know and I want to learn. You can make an answer by describing why giving more checks to the people who don't have savings is not worth it since it is penalizing people for having good savings habits and probably causing more side effects. Jul 30 at 2:12
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Just as putting a tax on wealth means we first must measure it, basing stimulus payments on assets would also mean the same. The US federal government has extensive mechanisms for tracking income, employment status, and number of dependents. The federal government has few mechanisms with regard to tracking wealth; there is no wealth tax in the US.

There's no way to base those federal government stimulus payments on wealth because wealth isn't tracked (and it's rather hard to track).

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    This is surely the actual reason. It would be much, much harder to do it based on assets (and far more onerous for the intended beneficiaries).
    – adam.baker
    Jul 28 at 11:57
  • OTOH, a number of politicians and pundits have proposed wealth taxes, which would require tracking this. But since the stimulus checks are going out now, and we don't have this information yet, we're stuck with using income information.
    – Barmar
    Jul 28 at 14:10
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    @Barmar - I agree. There are arguments for and against wealth taxes, but since we don't have a wealth tax now, there's no way to send out stimulus checks now based on wealth. Moreover, I predict Hades will freeze over before Congress passes a wealth tax. I'm not saying it's a bad idea (or a good idea). I am saying it ain't gonna happen. Jul 28 at 14:16
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In Policy, You Have To Choose The Error You're Going To Commit

In Logic, there are recognized two types of error:

  • Type I errors - The False Positive - is when you think something meets criteria that it does not.
  • Type II errors - The False Negative - is when you think something that meets the criteria, fails them.

No matter how well you think you've designed your policy or program, reality will laugh in your face and show you a whole menu of unintended consequences and mistakes. So when designing policy, it is important to control which kind of error you commit, because the consequences of policy errors can often be quite severe. The extreme example being criminal justice. In the United States, defendants are presumed innocent until proven - beyond the shadow of a reasonable doubt - guilty as determined by a unanimous decision of 12 of their fellow citizens. This is because a Type 1 error could result in the imprisonment - or death - of an innocent person. As a societal value, we would prefer to let a guilty person go (Type 2 error) than execute an innocent.

So when it comes to economic stimulus and relief programs, your options basically boil down to:

  1. Give people who don't need the help, a little help.
  2. Let people who desperately need help suffer whatever consequences (up to and including starvation, death, or forced criminality) befall them.

Beyond just a matter of 'waste a few dollars' vs. 'ruin someone's life' there's also the numbers involved. The number of rich people is profoundly smaller than the number of poor people. Even if every single wealthy person received money they didn't need, the cost of that error would be tiny compared to the cost of the program. Income testing is super easy because, as other answers have noted, the data is already there, just ask the IRS. But going deeper than that requires auditors and accountants to collect and analyze data - these people don't do this for free, and so these kinds of fact finding are fairly expensive. A $1,000 check to a few thousand rich people is still less expensive than just the payroll costs for the people who would otherwise be able to detect and disqualify those few thousand rich people.

One of the biggest challenges in public policy is learning to live with the fact that a lot of things we find philosophically or socially questionable are simply far less expensive, and therefore actually morally superior choices because we can spend more resources doing other important work, than what we would otherwise prefer.

Perfect is the enemy of good.

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  • Comments are not for extended discussion; this conversation has been moved to chat.
    – JJJ
    Jul 29 at 17:17
  • I'd like to ask a question. You mentioned type 1 and type 2 errors, but I failed to understand why it was mentioned. It seems like you are implying that taking wealth into account additionally will cause more type 2 errors. I thought it would be helpful for reducing type 1 errors without causing too many type 2 errors. If it's OK, can you elaborate more about this? Aug 3 at 1:59
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The goal is to keep the existing cash flows for necessities running, and not shake up the market otherwise, basically putting the economy on pause because it would react in a chaotic way to the disturbance caused by the pandemic.

Generally, assets will be tied up in some non-liquid form like a house, and forcing a sale, especially on short notice, would mean a sale at a loss, to the benefit of investors who have more cash on hand than they currently need, i.e. a net transfer of wealth towards wealthy people.

Giving stimulus checks to wealthy people is, in comparison, a smaller transfer.

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    @BeginnerBiker, even for those, a forced sale would put small investors (who need the money) at a disadvantage compared to institutional investors, so that, too, would be a wealth transfer from less to more wealthy people. Jul 27 at 15:25
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    @user2652379, the poor have little to sell. The problem is the middle class, whose assets are usually in a precarious state (e.g. with a mortgage attached), and where a shakeup of the market can easily wipe out twenty years of savings. Jul 28 at 8:43
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    There are some "asset rich, cash poor" people, generally those who have inherited assets like stately homes. While they may be highly valued, finding buyers for these properties is often difficult, as preservation orders prevent them just selling the land and having it knocked down, and the maintenance costs of these properties tends to be astronomical. Jul 28 at 14:54
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    @Crazymoomin If they can't sell the house, the prevailing economic theory they should lower the price until they can, and then that price is the actual value of the house. There's no such thing as "highly valued but difficult to sell". That's the same as "not highly valued".
    – user253751
    Jul 28 at 16:36
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    @user253751 Typically if they do find a buyer, they can sell it for a good price. It's just the market is so small, and the PO means they can't just sell it for cheap because few can afford the maintenance burden. Buyers generally don't want to lowball too much because it might drive down the prices of other houses in the area. It doesn't make sense, I know, but sometimes these things don't. Jul 29 at 11:59
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There are several reasons that have been mentioned individually but they all tie together in the end.

  • Assets may not have liquidity.

What I mean by this is you may have a decent amount of money in assets such as your house, car, retirement funds and other such things. However none of those are readily available to be spent for day to day necessities. As an example if you need money to pay housing related expenses and you don't have an income would it make sense to sell your house to cover it? Even if you wanted it would you be able to get a fair value with the circumstances of the time? The problem being while you may have the assets they are not able to translate to cash easily.

  • Costs of determining assets

As was mentioned the federal government currently does not track individual assets and having to track that would add an immense expense on both the governments. It would not be easy to get the initial tracking done, keep it up to date and ensure it is accurate with no fraud.

  • Costs of administering the program

The more restrictions you place on the program the more costs there is involved in making sure that the money only goes to those who are entitled. This also goes for how complex the restrictions are and with income that is a relativity simple check. This is also why some of the basic income programs that have been suggested have no limits on who gets them so that the overhead is much lower.

In the end the cost of giving it to richer people who may not need it will need to be weighed against the cost of adding in more restrictions. This is of course not counting people who may get left out with those restrictions but still need the money.

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  • More accurately, assets may not have liquidity. Some assets literally exemplify liquidity.
    – phoog
    Aug 1 at 0:49
  • @phoog Good point I updated it
    – Joe W
    Aug 1 at 2:42
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Because the stimulus checks were intended to mitigate the lost income (and not assets) in the first place?

There are few dimensions of being rich or poor and for running your daily life it is the income what is important, not the assets.

What's more, a reasonable asset owner may (and is expected to) insure the important assets. Securing the income is harder.

Of course, people that have assets and not income are in better position than people having neither assets nor income, but they are only marginally better, because:

  1. the assets are not liquid enough and many people selling their assets for living will crash one more market (not the best outcome in an already strained economy)
  2. It is the people with assets those who run the economy. A lot of them closing businesses and bankrupting will add to the unemployment even after the main crisis is gone.

Denying someone help just because they have assets may be OK for an individual (envy and everything), but much less so for the government.

It will also be a forbidden type of discrimination in a lot of countries, even if this type of discrimination usually works backwards.

p.s. really, it is no different to discriminate based on education.

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    Yeah, I misunderstood the purpose of the stimulus measures, which is to stimulate the economy. Jul 28 at 9:33
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    @user2652379 yes, there are differences between your two options. The stimulus checks stimulate the economy by mitigating the income collapse. That's why the income of the check receiver is a primary consideration. The assets of the check receiver are not related to the purpose of the program.
    – fraxinus
    Jul 28 at 9:45
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Speaking from experience, trying to determine what assets a person has is a pretty long and arduous process (a great example would be the Medicaid look-back period, which does just that). I mean, we're talking about having to list all their property, bank accounts, investments, etc. To say that this is a major pain would be an understatement, not to mention you still run the risk that

  1. They're under-reporting assets ("I don't make that much money")
  2. They're hiding assets ("I live here but my relative owns it")
  3. The wealthy have legal shelters for it (trusts, accountants, lawyers, etc.)

The more pragmatic approach is income because, in the vast majority of cases, your employer is already reporting your income on a quarterly basis (they collect your income tax and remit it). As such, the government already knows how much money you're making for the most part.

It's also unlikely that someone below the threshold set has a lot of assets anyways. Someone making $50,000 annually might own a car (which isn't really a big asset), but they probably rent their dwelling (if they do own a house, it's unlikely to be an expensive one), have limited savings, and probably very little (if any) retirement or investments.

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William Walker and David Hammen have made good answers, but one element critical to the COVID-19 stimulus payments in the US that they leave out is the factor of time.

It was not simply a matter, in this particular case, of the administrative cost of applying an assets test. William is right that this is a factor in the design of policy generally, but it was less important in this case.

David is also right to point out that the US already extensively tracks income, in part because tracking income is easier than tracking assets.

In the case of the COVID-19 payments, what was desired was something that could be paid out within days or weeks of the legislation passing both houses of Congress. There was no time to design any new administrative structure whatsoever, regardless of its cost. The federal government needed to be able to use data it already possessed, at the moment the legislation passed, to begin the process of issuing the payments.

And it possessed such data - the records of the income tax filings from the most recent tax year. The shortest distance between the passing of the legislation and the issuing of the payments possible - even shorter than sending a check to every last citizen - was to base payments on the data the IRS already possessed, especially since for a very large number of citizens that data even included bank account routing information.

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You seem to have missed an important point here. If you remember, at the time the stimulus bill passed, the stock market was in the midst of a steep decline, which some expected to become a major crash. The intent of the stimulus was not to be a welfare program (there were unemployment extensions and such for that). It was to get more money in circulation*, and so increase economic activity, in order to avoid that crash. That had to be done quickly if it was to have a chance of having the desired effect.

Thus the "reasonable reason" should be obvious. The IRS already had all the necessary data to pay based on income in their income tax files. All that needed to be done was to set up a database query, and send the money. A good programmer familiar with the system could probably do that in a day. Even the government managed to do it in under three weeks: the bill for the first stimulus was signed into law on March 27th, and the first payments were sent April 15th.

Now suppose instead that they had had to set up a bureaucracy to locate and verify assets. They'd probably still be working on it. Few people would have gotten money, which would have made the stimulus irrelevant.

Obviously the crash was avoided. Those more interested in economic theory can argue about whether, or to what extent, the stimulus program was responsible.

*Indeed, I think it's arguable that in order to work as a stimulus, it's more effective to give it to people who don't actually need the money. Those who do need it will simply spend it on the same old food & shelter, while a significant portion of those who don't will rush out to spend it on something they wouldn't ordinarily buy, at least not right away.

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Personally I think it is indeed strange/unfair not to take assets into account with a program like this. However there examples of other government-based welfare which only look to income. In the Netherlands for example access to public housing is only tied to to income, not assets. Also various contributions you have to pay to schools and childcare only look to income. I guess in other countries also various yet existing welfare programs can be found which only look to income.

So maybe the choice to take only a person's income into account for stimulus checks is partly just tradition.

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    It's easy to track yearly income; not so easy to track net worth. What's so strange about that?
    – RonJohn
    Jul 28 at 1:44
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    @RonJohn It is only "easy" to track the yearly income of (relatively) poor people. If you are rich enough to be able to pay an accountant, and given the shambolic state of most tax codes (the USA is particularly bad, of course) your "income" is whatever number you want it to be, and uncorrelated with the amount of money you have available to spend.
    – alephzero
    Jul 28 at 3:05
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    @alephzero if by "(relatively) poor people" you mean wage earners (even those making upwards of $250K/yr) then you're right. And the IRS has seen to it that your "income" is whatever number you want it to be is arrant nonsense.
    – RonJohn
    Jul 28 at 13:05
  • In the Netherlands, income (e.g. as it relates to determining whether you qualify for social housing) also takes into account (fictitious) income from wealth (explicitly mentioned are income from shares, investments and savings). The Dutch term is verzamelinkomen which includes income and fictitious yields from all three tax boxes. So (most) assets do affect the income calculation for the purpose of qualifying for social benefits and paying taxes.
    – JJJ
    Jul 28 at 18:40
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    @alephzero : But you miss the point here. Or two points, really. First, only RELATIVELY poor people got stimulus checks. Second, even if a few billionaires understated their income and got checks, so what? It's a rounding error compared to the total amount spent, and would cost far more to eliminate that to simply pay the money.
    – jamesqf
    Jul 29 at 16:22

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