Don't Expect Rebate Checks to Rev Economy

Paying down debt, rather than boosting the economy, is the top priority for Americans, survey finds.
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When Uncle Sam hands out money this summer, expect most consumers to use it to shore up their own finances rather than to jump-start the overall economy.

Beginning in May, rebate checks ranging from $300 to $1,200 will begin arriving in mailboxes throughout the country, thanks to President Bush's multibillion dollar economic stimulus package.

"Payments will be largely completed this summer, putting cash in the hands of millions of Americans at a time when our economy is experiencing slower growth," says Henry Paulson, Secretary of the U.S. Department of Treasury in a statement released earlier this month. "This package of payments to individuals and incentives for businesses to invest will support our economy as we weather the housing downturn."

But according to a survey conducted by Harris Interactive for CCH CompleteTax, an online consumer tax preparation software company, only 21% of Americans plan to spend their rebate checks, while 47% expect to pay bills and 32% say they'll save the money.

These numbers are almost identical to a survey of taxpayers from Gallup conducted before the receipt of their 2001 rebate checks. The lone difference in top-level response is that only 17% planned on spending their checks in 2001.

Spending habits are more related to an individual's situation rather than the overall economy, according to Matthew Shapiro, professor of economics at the University of Michigan.

"Whether or not economists say we're in a recession probably won't have an impact on what people will do," says Shapiro. "If households are worried on what's coming down the road: the value of their house, the value of their stocks, it is reason to stash their windfall."

Shapiro should know. He was co-author of a University of Michigan study conducted after rebate checks had begun arriving at homes in 2001. The results of the study showed that 22% said they were going to spend the money. Not all polled had yet received the money, however.

Even so, Shapiro says they are in the process of conducting the same survey and preliminary results are showing the responses to be almost identical. An official press release is expected to be issued later this month.

David Bergstein, a CPA and tax analyst for CCH CompleteTax, agrees with Shapiro that individuals look to their own fiscal health when determining what to do with their rebate check.

"If you're retired on a fixed income you probably have everything positioned for what you're doing with your money, so when you get a windfall you may spend it," says Bergstein. "If you're unemployed, you're going to spend it because you're going to need it."

As indicated in the results of the CCH study, however, most Americans plan to pay down their debt. "Everyone's probably looking at the economy and looking at their credit cards and they want to get rid of high-interest debt," says Bergstein. "If I had debt I would pay it down."

Shapiro and Bergstein also agree that the upcoming presidential election won't have a giant impact on the spending habits of Americans in regard to their checks. While taxes may go up depending on the outcome of November's election, says Shapiro, the checks will already be in the hands of most Americans.

, "People are thinking of the here and now and where they are in a fiscal state of health," Bergstein says. "I think people will start to pay attention to

the election, but most individuals are looking at where they are right now and how to better their lives." If Americans haven't spent their money when a new president talks of higher taxes, Shapiro warns the grip on rebates could get tighter.

Whether you know what you plan to do with your money or not, there are some who want to spend your money for you. "There's a lot of scams going on for people trying to steal identities because of this stimulus package," says Bergstein. "If someone sends you an email that looks like it's from the IRS and it goes out to a website that looks like the IRS, don't go there. It's probably a scam to get your money or your identity. The IRS only communicates, really, in written format with the taxpayer."