Stimulus Payments & Consumer Spending

The first round of tax stimulus checks have made their way to some Americans. The question is will Americans spend these checks and if they do what will they buy.

Consumer Spending

The Fed released consumer spending numbers that showed a marginal growth in consumer spending. The report showed a 0.4 percent increase in March, if inflation is taken into account the increase was more like 0.1%. From a NY Times article:

'Most of the money that was spent went toward services, including necessities like haircuts and medical care. Sales of big-ticket items like washing machines and television sets declined in March, the report said, a signal that Americans were putting off large-scale purchases, which are commonly bought on credit. In the first quarter, sales of those goods plummeted 6.1 percent.'

The report also showed that the average Americans income rose just 0.3 percent, barely keeping up with the monthly inflation rate and taxes. This was a drop from the 0.5% increase the month before.

Stimulus Checks

Congress passed the economic stimulus plan earlier this year. The plan was meant to boost the ailing US economy by prodding Americans to spend. (This type of economic 'stimulus' has been a favorite of the Administration and of Congress. They seem to think that we can spend our way out of any economic problem.)

If anything the boost will be short lived, and may not provide that much stimulation to the economy. A report issued by Parks Associates, indicates that 42% of the people they polled plan on saving their money due to the uncertainty with the economy.

Where Will The Checks Go

CNN.com has a series of articles on what 'ordinary' Americans plan to do with the stimulus checks.

Better yet, I like this journalists ideas:

• Put your money where your mouth is by donating your entire check to your favorite presidential candidate, or even your favorite local politician's war chest. So, John Q. Patriot, do you really support Barack, Hillary or McCain? Prove it.
• Guarantee a fine dining experience at your favorite eatery each month by paying up front and asking for a discount on drinks. Just think, $1,200 will get you and your wife into that swanky joint once a month for a year simply by saying, "Put it on my tab."
• Buy that new bicycle or mo-ped you'll soon need for local errands when gas prices get truly ridiculous.
• (H)ost your very own Economic Stimulus Act Block Party in your neighborhood and invite only those poor souls who didn't get a check from Uncle Sam.

Source:
'For a 4th Month, Shoppers Curtail the Desire to Spend', by Michael M Grynbaum, NY Times
'Consumers Saving Rebate Checks', by Laura Palotie, Inc.com
'Rebate checks: How to spend '' CNN.com
'Stimulating Ideas On How To Spend a Stimulus Check', by Jerry Davich, Post-Tribune

Some Good News, Sort Of....

The IRS will begin sending out the Economic Stimulus payments one week early. The plan is to get $50 billion dollars into the US economy by the end of May, with another $50 billion by the end of June. The money will be available just in time for summer vacations and gasoline prices at $4.00 a gallon.

Check out the stimulus payment calculator on this post.

Source:
'US to start sending tax rebates Monday:Paulson' , by David Lawder, Reuters

Economic Stimulus Payments

The IRS issued a news release providing information on when they will begin sending out the econmic stimulus payments. The IRS will begin to send out the checks on May 2 and expect to be completed with the initial round of weekly payments by early July.

Below are the schedules for economic stimulus payments related to tax returns processed by April 15, 2008.

Direct Deposit Payments
If the last two digits of your Social Security number are:	Your economic stimulus payment deposit should be sent to your bank account by:
00 – 20	May 2
21 – 75	May 9
76 – 99	May 16
Paper Check
If the last two digits of your Social Security number are:	Your check should be in the mail by:
00 – 09	May 16
10 – 18	May 23
19 – 25	May 30
26 – 38	June 6
39 – 51	June 13
52 – 63	June 20
64 – 75	June 27
76 – 87	July 4
88 – 99	July 11

Part of the press release noted that there is an online calcuator to determine if you are eligible for the payments and if so how much you can expect to recieve.

Source:
http://www.irs.gov/newsroom/article/0,,id=180247,00.html

2008 Stimulus Payment Calculator

Below is a calculator from News Hour Business Desk on PBS to estimate the tax rebate one would receive under the 2008 economic stimulus plan.

It will be interesting to see if this plan will do anything to stimulate the economy and if it does work how long it will keep the economy stimulated. I would venture to guess that the money will either flow off-shore to the export economies (China) or go towards consumer or non-durable goods (how many more flat screen TVs do we need?). Very little of the stimulus money will end up in bank accounts, investment accounts or going towards the purchase of capital goods, all of which would help the economy in the long run.

Another point of the stimulus package that is not often discussed is that it will increase the size of the National Debt. These days the size of the National Debt doesn't seem to be as big of an issue with the electorate. They are probably more worried about their own debt issues. Speaking of an election year, the stimulus plan seems more likely to stimulate re-election campaigns than the economy.

The current problem with the economy seems to be firmly rooted in the credit market and the effects of extending credit without regard to risk. Until the credit market becomes more comfortable with lending money and the risks involved, the economy will stay in the holding pattern it has been in for the past 6 months. But hey, I will take my money back from the IRS.

What will you do with your stimulus payment?

2008 Stimulus Payments

Information on the 2008 Tax Rebates from the IRS website.

Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.

The vast majority of Americans who qualify for an economic stimulus payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year. They will not have to complete applications, file any extra forms or call the Internal Revenue Service to request the payment, which is automatic. The IRS will determine eligibility, figure the amount and issue the payment.

Stimulus payments will be direct deposited for taxpayers selecting that option when filing their 2007 tax returns. Taxpayers who have already filed with direct deposit won't need to do anything else to receive the stimulus payment. For taxpayers who haven't filed their 2007 returns yet, the IRS reminds them that direct deposit is the fastest way to get both regular refunds and stimulus payments.

Basic Eligibility

The IRS will use the 2007 tax return to determine eligibility and calculate the basic amount of the payment. In most cases, the payment will equal the amount of tax liability on the return with a maximum amount of $600 for individuals ($1,200 for taxpayers who file a joint return) and a minimum of $300 for individuals ($600 for taxpayers who file a joint return).

Even those who have little or no tax liability may qualify for a minimum payment of $300 ($600 if filing a joint return) if their tax return reflects $3,000 or more in qualifying income. For the purpose of the stimulus payments, qualifying income consists of earned income such as wages and net self-employment income as well as Social Security or certain Railroad Retirement benefits and veterans’ disability compensation, pension or survivors’ benefits received from the Department of Veterans Affairs in 2007. However, Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment.

Low-income workers who have earned income above $3,000 but do not have a regular filing requirement must file a 2007 tax return to receive the minimum stimulus payment. Similarly, Social Security recipients, certain Railroad retirees, and those who receive the veterans’ benefits mentioned above must file a 2007 return in order to notify the IRS of their qualifying income.

The IRS emphasized that people with no filing requirement who turn in a tax return to qualify for the economic stimulus payment will not get a tax bill. People in this category will not owe money because of the stimulus payment.

For additional information > Facts about the 2008 Stimulus Payments