Wednesday, July 30, 2003
Copyright © Las Vegas Review-Journal

NATION'S ECONOMY: Ideas mixed on tax rebates

President Bush hopes Americans will spend checks; observers not sure they will

Reggie Cruz and Dell Trinidad check out car stereos Monday at Ultimate Electronics on South Rainbow Boulevard. A shopper at the store Monday said she will probably spend the child-tax credit refund check she expects to receive from the government, likely on school clothes. The government mailed the first checks Friday. Photo by Christine H. Wetzel.

Retailers and financial experts have varying opinions on whether the tax refund checks being mailed to 25 million middle-income households with dependent children will stimulate consumer spending and business investment as intended.

As part of President Bush's $350 billion tax relief package enacted in May, families with household incomes between $26,000 and $110,000 in 2002 qualify for tax credits of up to $400 for each child born in 1986 or later.

The first checks were mailed out Friday, returning a total of $4.4 billion to about 8.6 million taxpayers. The rest of the checks are coming in August, just in time for back-to-school shopping.

That's what Brenda Johnson, a Las Vegas mother of three children ages 6 to 10, said she'll probably do with the extra money.

"It's just $1,200. That ain't no money," she said while she measured stands for big-screen televisions at Ultimate Electronics on South Rainbow Boulevard. "It's something, but it's going to go quick on school clothes."

Mary Hawken won't do much to stimulate the economy. She got a $143 check in the mail Saturday for her four children, ages 6 to 13.

"Let's see, maybe I could pay a little of the electric bill. It wouldn't even cover it," she said while treating the kids to lunch at Hot Dog on a Stick in the Meadows mall. "Maybe it'll cover the water bill and gas bill or a trip to the grocery store."

Two years ago, most taxpayers received checks from the IRS regardless of whether they claimed any children as dependents. But one expert debated the effect on the economy.

"The last time we got a rebate, people used that to pay down debt, which does nothing to stimulate the economy," said Mary Riddel, associate director of the University of Nevada, Las Vegas' Center for Business and Economic Research. "I doubt if we'll see much impact."

Riddel said household debt is the highest in history and that additional personal debt is being rung up on credit cards.

"People will get that rebate check and put it toward debt," she said.

Household tax cuts made by the Bush administration include an increase in the child tax credit, marriage penalty tax relief, lower marginal tax rates, change in tax brackets, lower capital gains rates and dividends generally taxed at a lower rate.

At the end of the year, that's going to put more money in people's pockets, and they'll spend it over time, said Joe Curmi, investment specialist with Charles Schwab in Las Vegas.

He doesn't think people will be able to save enough money to invest, so they'll spend it.

"It was a token, a little gift," Curmi said of the child tax credit. "People who have things they need to spend money on will go to Wal-Mart or wherever and that translates into better earnings for companies and better stock prices, hopefully. That's the whole idea."

One company executive wondered what effect the current rebates would have.

"We remember back to the tax credits in 2001, we did see an uptick in spending up to the Sept. 11 incidents in New York," said Dave Workman, president of Ultimate Electronics. "So there was some effect. The question is, with the economy the way it is and the mind-set of people, will they be spending that money or putting it aside because they don't have confidence in the general economy?"

A UNLV official also was unsure if people getting rebate checks would spend them.

Keith Schwer, director of UNLV's Center for Business and Economic Research, said President Bush was "lucky" to come into office with a budget surplus, which allowed him to make tax cuts to fuel investment in the economy. Bush wanted $700 billion in tax cuts and compromised with lawmakers in May for a short-term stimulus package of $350 billion.

"If you drop taxes, will people turn around and use that money to spend? Possibly. If they put it in savings, you don't have that desired impact," he said.