Will the Federal Tax Rebate Have an Impact?
I read the news today, oh boy…
And with the dulcet tones of the boys from Liverpool serving as a backdrop, I’d like to draw your attention to the plan to stimulate the economy adopted yesterday by Congress and to be signed by President George Bush next week.
Evidently 137 million Americans, give or take a few hundred, will receive a check from the federal government this spring (target date May). Designed to put cash in the hands of the neediest of the needy (my words, not plan sponsors), it breaks down like this:
- A rebate of up to $600 would go to single filers making less than $75,000.
- Couples making less than $150,000 would receive rebates of up to $1,200.
- In addition, parents would receive $300 rebates per child.
According to Treasury Secretary Harry Paulson -
“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.”
But the question before us is will this plan from on high serve the purpose intended by our professional politicians? Or is it another well-intended or cynical ploy to minimize full attention toward our lethargic economy?
If a recent survey conducted by Harris Interactive for CCH is any indication this $170 billion give-away will have precious little impact on the national economy. Of 2,020 people surveyed, the use of the rebate looks to work like this -
Pay down debt: 47 percent- Save it: 32 percent
- Spend it: 21 percent
So the infusion directly into the economy of dollars presaged by Secretary Paulson and the members of the political bandwagon touting this plan appears to be predicated on wishful thinking and not clear analysis.
Why such a harsh assessment?
Look at credit card debt (otherwise known as most people living beyond their means). Today’s New York Times reported -
In December, revolving debt — an estimated 95 percent from credit cards — reached a record high of $943.5 billion, according to the Federal Reserve. The annual growth rate of this debt increased steadily in 2007, reaching 9.3 percent in the last quarter, up from 5.4 percent in the first quarter.
The amount of debt that is delinquent — in which minimum payments are late but the accounts are still open — also appears to be on the rise. The Federal Reserve found that 4.34 percent of the credit card portfolios of the 100 largest banks that issue cards was delinquent in the third quarter of last year, up from 4.07 percent in the previous quarter. Charge-offs — accounts closed for nonpayment — also grew in that period, and banks expect charge-offs to keep rising in 2008.
Gulp!
With this staggering information in mind it is easy to see why the majority of folks getting a couple hundred bucks from the government would clutch the wad of money in their fist and toss it at the ugly reality of their credit card debt.
Maybe a better place to start addressing the woes of today’s economy would be greater regulation of the mammon of the credit card industry and establish credit card interest rate caps. If nothing else this might serve to lower the cost of living experienced by the people the plan intends to assist.
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