Last Friday the US Government started sending out the first of 92 million tax rebate cheques. A total of $38 billion will be dispensed to the masses as the first instalment of President George W. Bush's massive tax-cut package. Single taxpayers will get up to $300 (£275) and married couples up to $600. Economists are now trying to figure out what the people will do with their once-off summer bonus, so they can calculate how it will affect the sluggish economy. I've done a survey of some acquaintances myself. Here are the results.
The building doorman is planning to buy a pair of roller blades. A server in the local deli will put the cheque towards his daughter's education. A liberal editor is giving the money to Amnesty to spite the President. A nurse will donate a portion to her church. Two neighbours are going to pay something off their credit card debts.
This is almost in line with a Gallup poll which found that only 17 per cent of respondents planned to spend the cash. About twice that said they will save or invest it. Almost half will use the rebate to pay debts.
The doorman and others who blow their $300 on something like roller blades or a restaurant bash will find favour with Fed Chairman Alan Greenspan. He wants to see the money ripple through the economy and restore the growth rate. If most people spend the windfall it could add as much as one percentage point to US growth, which at 0.7 per cent in the second quarter is barely skating above recession.
The big stores, naturally, are trying to encourage a buying spree. "Why wait on your tax rebate check? Shop Online Now," pleads the Wal-Mart website, which offers to cash rebate checks free for customers in their stores. Kmart adds $15 to every $300 cheque spent in one of their outlets.
The retail business faces stiff competition on all sides. Wall Street wants a cut. Morgan Stanley has taken out ads to urge savers to increase their retirement accounts. The Wall Street Journal pointed out that a $600 investment in Vanguard Total Market could grow to $2,180 over 10 years. Out in the sticks, a Missouri branch of Commerce Bancshares is offering a 10 per cent bonus to anyone who puts the full rebate in a saving account for a year.
Charities and churches are also eyeing the money flow. The American Red Cross points out that one rebate cheque would provide five days' food and board for a disaster victim. The Presbyterian Church wants members of its 11,400 congregations to give 10 per cent to the missions, while Judaism's Reform Movement is asking Jews to give the money to the poor.
Recalling President Bush's statement that "it's not the government's money, it's your money," Father Loren Weaver of St Luke's Episcopal Church in Long Beach was quoted as telling his congregation: "And we say it's not our money, it's God's."
A banker friend is not so sure that most Americans haven't already spent the tax rebate via their credit cards, knowing that the cheque was in the mail. This could have inflated the suspiciously-high consumer confidence figures of recent weeks.
For them the money from Washington will disappear into a black hole of interest-laden repayments. The average American family owes $8,000 in credit card debt, which constitutes about 45 per cent of the $1.5 trillion outstanding consumer debt in the United States.
US Treasury Secretary Paul O'Neill said the rebates will "give us a bounce and that bounce will carry forward into next year," but critics contend that by draining the coffers, the tax rebates will make it harder for Congress to find spending money for social programmes.
This of course was the unabashed aim of the $1.35 trillion tax-cut package spread over 10 years. During the election campaign Mr Bush wooed conservatives by saying if the money wasn't given back to the people, "the politicians in Washington will spend it".
In those days the US had a record budget surplus. With the slowing economy the surplus has dwindled dramatically, down from an estimated $275 billion just a few months ago to $160 billion, and the administration may be forced to prise open the previously sacrosanct Medicare trust funds.
Or it may eventually ask the people to give the money back. It happened once before. Ronald Reagan cut taxes in 1981 but had to raise them again in each of the following three years to meet basic government programmes.
One organisation, United For a Fair Economy, has set up a website, RejecttheRebate.org to encourage people to return the rebate in protest against the "irresponsible" tax cut, pointing out that one in four, mostly poor taxpayers, get no cheques in the mail.
