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  • Feb 8, 2008 11:10 pm US/Central
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Good Question: Do Tax Rebates Help The Economy?

Reporting
Jason DeRusha
(WCCO) This week, Democrats and Republicans in Congress overwhelmingly agreed to send out checks to most Americans.  And while the prospect of receiving a $600 check as a single tax filer, and $1200 for couples filing jointly is alluring, there are questions as to whether the tax stimulus payments will make a difference in the ailing economy.

 "In the aggregate, it can make a difference," said Paul Anton, chief economist for Wilder Research in St. Paul, Minn. 

Anton, though, likened the impact to a pillow, providing a soft landing.  He speculated that the extra money injected into the economy could change a quarter with a 0.5 percent decline in Gross Domestic Product to a 0.5 percent advance in GDP.

"It's a temporary windfall and it needs to be," said Anton, pointing to the large budget deficit of the U.S. Government.

Congressional researchers estimate the cost of the stimulus plan will be $168 billion dollars over a two year period.  The benefit is expected to be in the $152 billion dollar neighborhood, but that money could end up in the wider economy this year.

There are income limits to receive the checks.  Under the bill, individuals with adjusted gross income of up to $75,000 would be eligible for a rebate up to $600, while married couples filing jointly with an AGI up to $150,000 would receive up to $1,200. After those income levels, the rebates start phasing out.

Taxpayers with children would receive an additional $300 per child, with no limit on the number of child-based rebates. That means a family with four children could enjoy up to $2,400, and a family with two kids could receive up to $1,800.

The money is not a loan or an advance from the tax returns you'll file in 2009, according to Andrew DeSouza, spokesman for the U.S. Treasury Department. 

"Your normal refund that you will receive in 2009 (if you qualify for one based on your 2008 tax returns) will not be changed.  The stimulus payment represents additional money that is advanced to this year, instead of having to wait to get it next year," said DeSouza.

According to Anton, if people save the money instead of spending it, there will be no benefit to the GDP and the wider economy.  He suggested that if there were a way for the government to spend the money in short order, it would be a more efficient method of stimulating the economy.

However, a large-scale government public works program would take some time before the money ended up in the hands of construction contractors and materials suppliers. 

"It would be nice if they could press a button and make a difference today," said Anton.

"This is a little change, that helps to fill in a low spot in the economy," he added.

(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)

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