Many consumers spend early rebates on soaring cost of living
CHICAGO -- Many Americans allowed themselves to fantasize about large-screen TVs, European vacations and other luxuries when they learned of the federal rebates they'd be getting this spring and early summer.
Or maybe — shh, don't tell the president — they'd pay off a credit card or set the rebate aside for a big purchase in the future, notwithstanding Washington's intentions that they pump it immediately into the flagging economy.
"It's not often you get a windfall like that that you can just stash away for something you need later," said Sara Jackson, 29, a graphic designer in Chattanooga, Tenn.
But reality has interfered, in the form of ever-climbing food bills and $4-a-gallon gasoline. While some consumers got their dream TVs, as confirmed by a spike in April retail sales in anticipation of the economic stimulus payments, day-to-day living costs have sopped up the checks for many other early recipients and spoiled their rebate fantasies.
Based on a small but broadly diverse group of consumers who tracked their rebate spending in detail for The Associated Press, there was no mass rush to the malls for shopping sprees after the payments started showing up in bank accounts in significant numbers in May. The greater economic ramifications may not be seen for months.
Vanessa Church, a 49-year-old Chicagoan with six children, was grateful for the rebate but found there wasn't much left over after big payments for utilities and other basic needs were taken care of. "Things are getting tighter and tighter," she said, adding jokingly: "I'm thinking they should do this twice a year."
Brandi Dobbins, 26, and her fiance each got their $600 checks just before their May wedding on the coast of Maine. The combined amount was spent almost instantly when their caterer called and, after asking 'Are you sitting down?', informed her that due to food inflation their bill for the wedding was jumping from $46.50 per guest to $59 — virtually the entire $1,200. "In the economic grand scheme of things, I'm not quite sure that's what they intended us to spend our money on — inflation — but that's where ours went," Dobbins said.
Derek Houck, an actor in North Hollywood, Calif., planned to allow himself an indulgence or two with whatever was left of his rebate after he'd taken care of necessities. It turned out to be more modest than he'd thought. When his personal finance software program showed him he had a whopping 50 cents left from the $600, he still celebrated by shelling out $49.95 for a new Wii game.
All told, 131 million households are to receive a total of $110 billion by the time the last payments are doled out in mid-July. What people do with them will help shape the direction of the sputtering economy.
The last time Washington undertook such a program to combat an economic slowdown, taxpayers got rebates of $300 or $600 in the summer and early fall of 2001. The eight-month recession was over by November, but it's not clear how much the payouts helped. The amount that people actually spent — excluding saving money, investing or paying down debt — was lower than many economists expected, although estimates vary so widely an exact total is hard to peg.
This year's program provides more money, aimed at delivering a bigger shot of adrenaline to the economy by inducing people to buy items they didn't otherwise have the cash for.
Most individual taxpayers are getting checks of up to $600, while couples receive $1,200 plus $300 for each eligible child under 17. People earning too little to pay taxes but at least $3,000, including seniors whose only income is from Social Security, get $300 if single or $600 if a couple. And there are no payments for the wealthy: The amount starts to phase out for those with incomes over $75,000, or $150,000 for joint filers.
Based on economists' preliminary assessments, and echoed by the AP sample group of more than two dozen people, Americans are not hesitating to spend the money — but more for essentials than was anticipated. It's easy to understand why: Gas prices are up more than 30% since the rebate check amounts were first announced and food prices are projected to increase 5% or more in 2008.
