Shot of cash to the rescue

WASHINGTON -- The checks aren't in the mail, but they will be soon.

President Bush signed legislation Wednesday to rush rebates ranging from $300 to $1,200 to millions of people, the centerpiece of government efforts to brace the wobbly economy. First, though, you must file your 2007 tax return.

More than 130 million people are expected to get the rebates, starting around May. About 1.1 million Nevada households will get rebates, with a total of $1 billion coming to Nevada. The average household rebate in Nevada will be $909.

Congress, Bush, the Federal Reserve and Wall Street are hoping the money will burn such a hole in people's pockets that they will not be able to resist spending it. And the spending is supposed to give an energizing jolt to a national economy that is in danger of toppling into a recession if it hasn't already.

Whether people spend the money remains to be seen. A recent Associated Press-Ipsos poll indicates most people have other plans. Forty-five percent said they planned to pay off bills, while 32 percent said they would save or invest it. Only 19 percent said they would spend their rebates.

The measure Bush signed -- a $168 billion rescue package passed with lightning speed by Congress last week -- includes not only rebates for individuals but tax breaks for businesses to spur investment in new plants and equipment. That, too, would help bolster U.S. economic activity.

The package contains provisions aimed at helping struggling homeowners clobbered by the housing collapse and the credit crunch refinance into more affordable mortgages.

Bush, who called the measure "a booster shot for our economy," praised the bipartisan cooperation. "We have come together on a single mission, and that is to put the people's interests first," he said.

Senate Majority Leader Harry Reid of Nevada was invited to witness Bush sign the bill into law at the White House.

Reid said the plan "will help millions of Americans who are struggling in an uncertain economy."

Democrats should be given credit, Reid said, for adding 20 million senior citizens and 250,000 disabled people to the recovery plan.

"But we have much more to do in the long term because many more Americans still need our help," Reid said.

Rep Shelley Berkley, D-Nev., said the rebate checks will be welcomed.

"These rebate checks will help families stretch their dollars at a time when many women and men in the Las Vegas Valley are working day and night just to make ends meet," she said.

But Sen. John Ensign, D-Nev., who was among 16 senators who voted against the stimulus bill, said Wednesday he was still not sure it was a good idea.

"The economic stimulus package will not provide our economy with the immediate relief we need to encourage meaningful economic growth," Ensign said in a statement.

"Our economy is struggling, and I do not believe that some of the policies in this bill are justified when you consider the additional debt this leaves for our grandchildren to repay."

Ensign had been critical of offering checks to people who earn too little to pay taxes, including some elderly who live off Social Security and veterans who collect disability.

Who gets a rebate? Most people who pay taxes or earn at least $3,000, including through Social Security or veterans' disability benefits.

Singles making more than $75,000 and couples with income topping $150,000 will get smaller checks. The top limits for any rebate are incomes of $87,000 for individuals and $174,000 for couples.

To get any rebate, you must file a 2007 tax return and have a valid Social Security number. If you already have filed your 2007 return, the IRS said, you don't need to do anything extra.

Most taxpayers will receive a check of up to $600 for individuals and $1,200 for couples, with an additional $300 for each child.

People earning too little to pay taxes but at least $3,000 -- including elderly people whose only income is from Social Security and veterans who live on disability payments -- will get $300 if single or $600 if a couple.

The IRS will send rebates, by mail or by direct deposit into your bank account, through the late spring and the summer. The rebates come in addition to any regular tax refunds.

To pay for the rebates, which are estimated to cost about $117 billion over the next two years, the government will have to borrow more money, enlarging the budget deficit.

The Bush administration and some private economists are hopeful the rebates, tax breaks and interest rate reductions by the Federal Reserve will help the country dodge a recession.

But several economists think the country already has fallen into its first recession since 2001, and they are hopeful the rescue package will limit the damage. Most people, 61 percent, said the economy is now in a recession, according to the AP-Ipsos poll.

Jeremy Aguero, a principal in the economic- and policy-research firm Applied Analysis, said the stimulus package's $1 billion infusion into Nevada would have a "material impact" on the state's economy.

It's tough to predict whether local consumers will use their rebate to pay down bills rather than spend the cash on discretionary goods and services, Aguero said, but based on his company's experiences and examinations of past indicators, he said he expects Nevadans to hit local shopping centers with checks in hand.

"People will see this money as a windfall," Aguero said. "It's a relatively substantial amount. People have been tightening their belts, and this (rebate) is going to feel like a little bit of relief."

Tops among the beneficiaries of increased consumer spending will be casinos, restaurants, furniture stores, electronics sellers and big-box retailers, which include companies such as Wal-Mart and Target, Aguero said. The home-repairs sector should also get a lift.

Still, the rebates probably will not forestall a recession, if one is in the offing, Aguero said, because the housing market continues to stumble, with double-digit declines year over year in sales and median prices. Nevada also has the nation's highest home-foreclosure rate, which forces housing prices down even more by lowering the comparable closing prices Realtors use to determine future listing prices.

"As the housing market finds new equilibrium, that's going to be the linchpin in economic stability," Aguero said. "The rebates won't be enough to stop the continued slide in residential real estate and a greater decline in commercial real estate, but they're still worthwhile."

The National Bureau of Economic Research, a private research group, looked at what people did with their 2001 rebates. The study found that "households spent about 20 to 40 percent of their rebates on nondurable goods," which can include items such as food and clothing, in the first three months. They spent roughly another third in the following three months.

With the current stimulus plan, the economy will log growth of 2.25 percent to 2.50 percent in the second half of this year, roughly 1 percentage point higher than without the bracing tonic, estimated Stuart Hoffman, chief economist at PNC Financial Services Group.

That would be closer to a more normal rate of around 3 percent, he said.

That should encourage businesses to step up hiring. Employers cut 17,000 jobs in January, the first nationwide loss of jobs in more than four years.

Edward Lazear, chairman of the White House Council of Economic Advisers, said, "The stimulus will have the effect of increasing jobs by about half a million above the number that would have been the case in the absence of that."

Still, even with the rescue efforts, some analysts fear the economy could backslide and flirt with recession again in 2009.

To help the depressed housing market, the stimulus package would raise temporarily to as high as $729,750 the limit on Federal Housing Administration loans and raise the cap on loans that mortgage giants Fannie Mae and Freddie Mac can buy.

Raising the limits, should provide relief in the market for "jumbo" mortgages, those exceeding $417,000. The credit crunch hit that market hard, making it very difficult, if not impossible, for people to get such loans. That has plunged the housing market even deeper into turmoil.

House Speaker Nancy Pelosi of California said the provisions will provide "families a second chance at the American dream of homeownership by helping them refinance their mortgages and avoid foreclosure."

Stephens Washington Bureau Chief Steve Tetreault and Review-Journal writer Jennifer Robison contributed to this report.