The next big rebate from the IRS

Bush launches the child-care tax credits Friday, in time to boost back-to-school sales.

Friday, Uncle Sam will start mailing checks to some 25 million Americans as part of the president's plan to stimulate the economy. In Northfield, Ill., Lynne Brenner, a divorced mother of two girls, knows where the money is going: school supplies, books, and clothes. "Kids are expensive and book fees are a lot," says the fitness-center manager. "Whatever's leftover after supplies, we'll go to Old Navy."

That's exactly what the government hopes will happen over the next three weeks as the US Treasury mails out some $14 billion in child-care tax-credit checks. The checks are one of the most important - and visible - parts of the $350 billion in Bush tax cuts.

Although polls show many consumers say they will pay off bills, economists expect the money will really go to new purchases. The checks - up to $400 per child - are arriving about the time stores are cranking up back-to-school sales - their second most important shopping season. Consumers will be enticed to spend the money on sneakers, jeans, notebooks, and computers.

"The timing of the tax cut is perfect," says Sung Won Sohn, chief economist for Wells Fargo Banks in Minneapolis. "It's one of the reasons why we are projecting the economy will perk up in the third quarter, hopefully averaging over 4 percent at an annual rate."

Thursday, President Bush, in an indication of how important the checks are politically and economically, went to Philadelphia where some of them will be printed.

For their part, Americans won't have to file any forms or do any work to get the money: The IRS will mail the checks out to people who filed for a child tax credit last year. The Internal Revenue Service will send out letters notifying recipients, and filers can check their status on the IRS's web site.

Yet not everyone with children will receive the checks - a fact that sparked a major dispute in Congress. Some 16.5 million low-income families will be excluded because, with their earnings of $10,500 to $26,625, they don't make enough to pay income taxes.

Last month, the Senate sliced $4 billion from other programs and extended the tax credit to those families. GOP moderates urged the House to pass the Senate bill quickly. Instead, the House Republican leaders passed an even larger bill, including tax breaks for military personnel, at a cost of $82 billion. Since then, House and Senate negotiators have been stymied over how to go forward, including on the issue of whether the tax break should sunset. Thursday, President Bush, while watching the checks get printed, urged compromise.

Those who will get the checks are expected to hot-foot it to the malls or maybe a tourist destination. "My guess is most people will treat it as a windfall," says Kate Krause, associate professor of economics at the University of New Mexico. "I think they will do something I might characterize as a luxury expense instead of a day-to-day expense."

Consumers will quickly become aware that retailers want a piece of their money. Wal-Mart, for example, has already sent out signs to all its stores, offering to cash the checks whether a consumer spends money in the store or not.

"Two years we did the same thing with the first rebate checks, and the customer response was positive. We decided it was the right thing to do again," says Sharon Weber, a spokeswoman.

To save or to consume?

However, some retailers might be disappointed. A Gallup survey in late June found that 45 percent of those polled planned to use the money to pay their bills.

One of those is Jeff Wexler, who lives south of San Francisco with his wife and three children. Mr. Wexler, an assistant chef at a San Francisco hotel, plans to use the money to pay down his $6,000 in debt. "We use our credit card to pay for our everyday living expenses," he says. "In order to afford to live here, we go into debt."

The checks will also be arriving at a time when expenses are rising for many families because of state budget problems. That's the case for Elisabeth Hensley, a former teacher and mother of two who lives in the East Bay area of San Francisco. She expects to pay more for child care since California's announcment that it will scale back subsidies to day-care centers.

"Most families will need this money to pay for expenses that cost them more because of the state budget crisis," says Ms. Hensley, who will start graduate school in the fall.

The president and Congress also hope to receive some positive public relations from the bounty. They can count on Mohamed Hussein, a fire safety director in New York. "If I get it then I'll be grateful," says Mr. Hussein, who still has a 16-year-old living at home.

For many Americans, getting anything back from the government is welcome. "Everything is so expensive - clothes, books, paying for a good school so they can get an education," says New York concierge Beatrice Mottora, who plans to save the money for college for her three children.

Some harbor doubts

However, other Americans - especially those with higher incomes - are uncomfortable getting the checks while lower- income people don't qualify. "There's a part of me that feels like I should take that money and donate it," says Teresa Sommer, a suburban mother of three who has paused her career in public policy research and teaching to raise her children.

"Part of me looks at it with guilt and thinks, what can I do with it to provide opportunities for other children?"

And some Americans worry about the budget deficit. "I just look at these tax refunds as scams," says Hensley from the Bay area. "It's a nice effort, but there's a deficit that's being created to create this refund."

Staff writer Gail Russell Chaddock in Washington, Anne Stein in Chicago, Leila Wombacher Knox in San Francisco, and Elizabeth Nesoff in New York contributed to this report.

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