Will Tax Rebates Work?
February 7, 2008
The issue: Congress is hoping the stimulus package will jump start the economy with consumers using the money to buy goods. The problem: Most consumers do not plan to spend the money of goods.
It appears that many Americans are planning to either save the money that they get or they plan to use it to pay down debt, especially high interest credit card debt.
It has been estimated that only 15 to 38 percent of consumers will spend the money on goods and services. Somewhere in the neighborhood of 28 to 50 percent are planning to use the money to pay down on current debt. Another 17 to 35 percent say they plan to save the money for use later on.
These surveys were not scientific in nature, but they do give some insight into how consumers are thinking. As is often the case, consumers are not thinking the way politicians are thinking.
It should be noted that many times consumers will say one thing and then do another. This is human nature. We have all promised to lose weight at New Year’s and then went on to gain weight when push came to shove.
The purpose of the rebate was to get cash into the hands of companies so that they would in turn invest in their companies by hiring more people. Consumer spending is responsible for as much as two-thirds of the GDP in the US.