Tax rebates: How big a boost?
The $107 billion stimulus is now flowing to taxpayers, to spend or save as they see fit.
from the April 30, 2008 edition
Page 2 of 3
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Reporter Peter Grier discusses what impact economic stimulus checks could have on the US economy.
The amount of the rebate is gradually reduced for individual taxpayers making $75,000 annually, and couples with a combined income of $150,000.
For the most part, the money itself is not subject to federal income tax, and shouldn't be listed as income on 2008 tax returns, according to a report on stimulus program details by the Congressional Joint Committee on Taxation.
From the point of view of consumers‚ the arrival of the rebate checks now appear to be well timed. With gasoline prices soaring and the job market weakening, the Consumer Confidence Index fell to 62.3 in March, the Conference Board announced April 29. That is its lowest point since March 2003, just prior to the US invasion of Iraq.
Furthermore, stimulus checks are something of a proven technique. Washington has approved individual cash rebates at least three times in recent history: in 1975, 2001, and 2003.
An analysis of the economic effect of the 2001 rebates published in the American Economic Review in December 2006 found that the effect of the checks on US consumer spending was "substantial."
Two-thirds of the money was spent within six months, according to the analysis. Much of it was spent on nondurable goods, flowing through the US economy at a relatively quick pace.
Economist Mark Zandi of Moody's Economy.com figures that this year's checks will get spent similarly. That is good news for the economy, he figures.
Though there are bad signs, "the recession is expected to be mild and short, mainly because policymakers are fully engaged in stemming it," Mr. Zandi writes in his latest outlook for the US economy.
The extent of the boost the checks may provide is a matter of debate, however.
A survey of 38 economists taken earlier this year by the Philadelphia Federal Reserve found that the median prediction was an extra 0.3 percent growth in GDP for 2008, and an extra 0.1 percent in 2009, because of the stimulus spending.
But the survey notes that "a wide divergence of opinion surrounds these median estimates," with some economists thinking the checks will have no effect, and others predicting as much as a 1.5 percent GDP boost.
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