Americans See Scant Help in Tax Refunds, Bloomberg Poll Finds
By Brendan Murray
Washington, Aug. 9 (Bloomberg) -- American consumers aren't counting on President George W. Bush's $1.35 trillion tax cut to jump start the sluggish economy, a Bloomberg News poll found.
A majority of those surveyed, 57 percent, said the 10-year tax reduction either wouldn't make much difference to the economy or would hurt it, while 37 percent said it would help. The government began withholding less from paychecks in July, and advance refund checks of as much as $300 are currently being mailed to taxpayers.
``There's probably a very real, commonsense aspect that for some people, $300 or $600 is not a huge tax cut,'' said Jay Mueller, who helps manage $45 billion at Strong Capital Management in Menomonee Falls, Wisconsin.
Consumer spending makes up two-thirds of the U.S. economy and has helped stave off recession this year as manufacturing slumped. While Bush said last week that the tax reduction will ``help rebuild the momentum'' of the economy, the poll suggests many people believe a rebound is coming anyway.
The proportion of respondents who said growth will pick up in the next year increased from the last Bloomberg poll, in June. Thirty-five percent of survey participants said they expected things will get better during the next year, compared with 33 percent in June. Twenty percent said the economy would worsen, down from 25 percent in the June survey and 31 percent in January.
Less Pessimism
``This is a case where pessimism has decreased,'' said Evans Witt, president of Princeton Survey Research Associates, which conducted the poll. ``Energy prices are down, tax-cut checks are coming, and unemployment isn't going through the roof.''
The poll was based on interviews with 1,206 adults who were asked about their personal finances, their views on the economy and their purchasing plans. The poll was taken July 31 to Aug. 5 and has a margin of error of plus or minus 3 percentage points.
U.S. companies said in July they would cut 205,975 jobs at plants and offices around the world, a record for the month, according to a survey released this week by the employment firm Challenger, Gray & Christmas. Still, the deluge of pink-slip announcements has done little to damp consumer optimism, according to the Bloomberg poll.
In the past year, the majority of survey participants have shifted from saying the economy is in ``good'' to ``excellent'' shape to calling it ``fair'' to ``poor.'' The latest poll found 38 percent said the economy was doing well, little changed from 37 percent in June. The proportion saying the economy was doing poorly was 60 percent, compared with 61 percent in the June survey.
Reversal in Sentiment
That sentiment is a reversal from a year ago, when a Bloomberg poll in July 2000 found that 61 percent of respondents rated the economy good to excellent and 37 percent said it fair to poor.
``Confidence on Main Street and the ability to spend are still pretty high,'' said Diane Swonk, chief economist at Bank One Corp. in Chicago. With strong sales of homes and automobiles so far this year, ``consumers' actions are speaking louder than their words,'' she said.
When asked about the outlook in the next 12 months for the U.S. economy, at least 30 percent of respondents in each wage category expected an improvement, the poll showed. Sentiment has changed since the beginning of the year, when the poll found 31 percent of Americans expected the economy to worsen and 19 percent saw an improvement.
While they are divided on whether the tax cut will hurt or help, 42 percent of people said Bush's economic policies, of which the tax reduction is the most visible, would help in the year ahead, up from 32 percent in June.
Wealth Effect
Among respondents whose annual income was more than $60,000, more than 40 percent see the economy poised to rebound. The least optimistic were people who made less than $20,000 a year, 30 percent of whom expect the economy to improve.
There may be several reasons for the increased optimism. The Standard & Poor's 500 stock index is up about 9 percent from its two-year low reached April 4. Federal Reserve policy makers have reduced the overnight lending rate six times this year, to 3.75 percent, to help bolster the buying power of consumers and businesses. And incomes rose more than expected in June, a Commerce Department report showed last week.
Home prices are 8.8 percent higher than a year ago, and that has helped offset the effects of falling stock prices, analysts said.
``Of much more importance is the fact that the people look at the value of their own homes and see that it has not eroded,'' said Lara Rhame, an economist at Brown Brothers Harriman & Co. ``Although layoffs are still out there, their own income keeps rising.''
Tax Refund Plans
Lucent Technologies Inc., Hewlett-Packard Co. and Walt Disney Co. are among U.S. companies to announce job cuts this year.
Employers eliminated 217,000 jobs in the second quarter, the biggest quarterly decline since the first three months of 1991, when the economy was in recession.
Even though companies have been firing workers, the jobless rate, at 4.5 percent last month, remains below the unemployment rate at the end of the most recent recession a decade ago, when the jobless rate peaked at 7.8 percent in 1992. ``Fewer people around the neighborhood are getting laid off,'' Rhame said.
The poll showed men are more confident than women that the economy will get better. Two-fifths of male respondents said growth is poised to rebound in the next 12 months, while 30 percent of women expected a turnaround.
In May, Congress passed a tax cut bill that will return an estimated $38.2 billion in rebates to taxpayers by October. By the end of this week, the Treasury Department said it will have sent 24.2 million rebate checks worth $10.3 billion.
Two-fifths of the respondents will pay rent or credit card bills with their rebate checks, according to the poll. Twenty- eight percent said they will save it.
Spend It?
While some economists have predicted that the rebates will add to third- and fourth-quarter growth, only 14 percent of the poll respondents said they plan to spend the money on items they wouldn't otherwise have bought.
``That's probably not what the Federal Reserve and White Houses economists were looking for; they would be much happier if that number were up around'' 30 percent, Witt said. ``This is probably not great news for the economy.''
About two-thirds of the respondents said they approved of the tax cuts, the poll showed.
Some Americans disagree with Bush administration officials such as U.S. Treasury Secretary Paul O'Neill, who have said the rebates will add to growth in the second half. Forty-one percent said rebates won't make much of a difference in the economy, while 37 percent expect the rebates will boost growth. |
