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Politics : The Donkey's Inn -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (2385)	1/29/2002 12:21:49 AM
From: Mephisto	Respond to of 15516

No Economy Boost From Tax Rebates Sunday, January 27, 2002 By DAVID ANDELMAN Daily News Business Editor Last year's $38 billion tax rebate, designed to stimulate consumer spending, appears to have flopped. Fewer than a quarter of the $300 and $600 tax rebate checks sent out from July through September were spent. Instead, most of the checks were used to pay down credit card debt or were put into savings accounts, a study by the University of Michigan and data from the federal Bureau of Economic Analysis show. "A surprisingly small fraction of people who got the rebates turned around and spent more than they would because of the rebates," said Prof. Joel Slemrod of the University of Michigan, co-author of the study "Consumer Response to Tax Rebates." "So the stimulative effect of the rebate package was less than many people expected." Staying the Course Still, the White House insists the rebate helped boost the economy. "Most economists, even the Fed [Federal Reserve Board] chairman, underscored the support the tax cut gave to the economy in 2001," Glenn Hubbard, chairman of the President's Council of Economic Advisers, told the Daily News. The survey was conducted by the University of Michigan as part of its monthly consumer sentiment index, which for more than 40 years has been a benchmark for consumer spending habits. The study found that just 22% of those surveyed spent their refund checks. That would mean only about $8.4 billion was recycled into the economy over two months, compared with more than $600 billion in personal spending in an average month, according to Commerce Department figures. Numbers from the federal Bureau of Economic Analysis are even more striking. The first checks began arriving in the mailboxes of 90 million eligible households at the end of July and continued to show up through the end of September. Personal savings jumped from $15.5 billion in July to $26.1 billion in August and remained high into September, when Americans saved $29.8 billion. Savings plummeted in October, to $1.5 billion. The rate of savings followed a similar trajectory. Savings as a percentage of personal income jumped from 2.5% in July to 4.1% in August, peaking at 4.6% in September before plummeting to 0.2% in October. In short, people were saving rather than spending. Slemrod and his co-author, Prof. Matthew Shapiro, suggested people were worried about the acceleration in layoffs. "They're thinking, 'Our family has been spending and saving as if our jobs are going to last forever. If not, we're stuck. Maybe we should be building a cushion for that. Maybe that's how we should use the check,'" Slemrod said. "The [2001] tax rebate was meant to be a down payment on a future tax cut," but it was perceived as a one-time event, Shapiro said. "Under that circumstance, it was sensible to save a vast fraction." Tax Break Not Seen The study found that most taxpayers failed to connect the refund with the permanent drop in income tax rates that debuted Jan. 1 and, hence, a permanent increase in their spendable income. Hubbard conceded that although the rebate was intended to be a down payment on long-term tax cuts, many taxpayers may not have seen it that way. Still, he said, "There was no other way to get the money out there fast enough." nydailynews.com