Skip to: Content
Skip to: Site Navigation
Skip to: Search

Would tax rebates work?

The government aims for more spending, but in the past many saved their checks.

(Page 2 of 2)

Even Treasury Secretary Henry Paulson acknowledges that any stimulus plan has its limits. "There are no silver bullets," he said at a press conference Friday. "There's nothing that's perfect, but to be quick and to focus on the areas we've mentioned, give money to consumers – there's plenty of evidence. You give money to people quickly; they're going to spend it...."

Skip to next paragraph

That will certainly be the case with Joey Infante, a hairdresser in New York. "I'm going to Disney World," he announces. "I can stay with my sister and go to my favorite ride, Space Mountain."

In Chattanooga, Tenn., Jonathan Bragdon and his wife will buy a stove and dishwasher because they're moving. "The rebate would mean less money I put on the credit card," he says.

Gina Daily in Gulf Shores, Ala., envisions spending any government payout on expanding her seafood store. "I was supposed to have an outdoor produce market on one side of my property, but the contractor left town. So I can use the money to grow," says Ms. Daily, owner of Gulf Shores Seafood.

Others will take the money and save, as the University of Michigan study found. That's the case for Joseph Roca, who lives in Brooklyn, N.Y. "I'll put it into my individual retirement account," he says. By way of contrast, in the last rebate in 2002, he plowed the money into his business in Florida.

Yet others plan to pay down their credit cards and other bills. "That money goes towards my mortgage payment," says Guillermo Olaya of Rahway, N.J. "It might give me a little breathing room."

In 2002, the University of Michigan went back to people who had used the money to pay down their credit-card balances to see if they had picked up spending again. "What they said is they did not put their credit-card balances back up right away," says Mr. Slemrod.

But Craig Shearman of the National Retail Federation maintains that paying off the plastic frees up credit lines to spend more. "It moves into the economy," he argues.

Mr. Bush has also proposed giving some kind of tax break to businesses, but it may be even less successful at providing immediate help. Matthew Shapiro, an economist at the University of Michigan, studied the effects of the 2002 tax break, which allowed business to accelerate depreciation of certain purchases. It boosted GDP by no more than 0.1 percent and added 100,000 jobs, he estimates. "It was barely measurable," he says. "It helped a very narrow range of firms that buy things that last a long time."

Business may not be supportive if Congress mimics that 2002 tax break. "Our guys don't like it. It forces them to make decisions before they are ready," says Thomas Duesterberg, president of the Manufacturers Alliance/MAPI in Arlington, Va. "To get a change in business takes a lot longer."