Rebate Checks Could Take Months to Mail

Congress is told that the 'immediate' relief might not come until spring.

February 9, 2009, 3:43 PM

Jan. 23, 2008&#151; -- President Bush and Congress are working quickly to get some type of economic stimulus package out to the American people to help the sagging U.S. economy.

Most parties expect some type of tax refund check to be part of the package, but it could take months to actually get millions of checks mailed out to the public.

Peter Orszag, director of the Congressional Budget Office, said today that the earliest such checks could be mailed out in mid May or June.

There will be a lag in getting them processed and in the mail, because the Internal Revenue Service is now busy working on 2007 income tax filings, Orszag told the House Budget Committee today.

"The same [information technology] system and the same people who process rebates are working on that, so basically until the 2007 tax season is closed, the IRS cannot turn in any significant way to processing rebates," Orszag said.

Once the checks start going out, Orszag said, it could still take another eight to 10 weeks to mail them out.

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University of Maryland economist Carmen Reinhart told ABC News that moves by the Federal Reserve are more "nimble" than rebate checks which can take a long time to get into consumer's hands.

"One thing is announcing it, it's another to implement, and another is the time it takes to take effect and hit household spending," Reinhart said. "Those are very long lags. It's the right direction … but lags are significant and the snags are many."

"Fact remains, you don't heal balance sheets overnight," Reinhart added. "You just don't."

The president called Friday for a short-term $140 billion to $150 billion economic stimulus package to give the U.S. economy a "shot in the arm."

He urged Congress to act quickly to "keep the economy growing and to save jobs."

Most likely, tax cuts for business and tax refund checks for individuals will be part of the final deal.

Treasury Secretary Henry Paulson, asked when Americans will see the money said, "Quickly, and in time to make a real difference this year," and he refused to elaborate.

"We're going to run like a bunny to get the relief out," he added.

In order to be effective, the president wants the tax breaks to be about 1 percent of gross domestic product, which would fall somewhere between $140 billion to $150 billion.

The most likely outcome will be that most Americans will get some sort of tax refund check later this year.

The White House is considering rebates of up to $800 for individuals and $1,600 for married couples, according to The Associated Press. Bush and Paulson did not confirm that today, but if true, the refunds would be larger then the checks taxpayers received during a similar stimulus plan in 2001. Those checks ended up being $300 for single taxpayers and $600 for joint filers.

Democrats in Congress, however, are considering smaller checks and putting more money toward food stamps and increasing the time that people can collect unemployment insurance.

It is possible that checks will now be as low as $300 a person.

Before anybody can write a check, Democrats and Republicans in the House and Senate need to agree with the White House on a plan. Then once the plan becomes law, it will still take the administration some time to process all the checks.

In 2001, the checks were mailed out in stages between July and September, according to the last two digits of taxpayers' Social Security numbers.

The idea behind the checks is that consumers who are worried about spending money will suddenly be more willing to buy that new TV or go out for a special dinner, which will help stimulate economic growth.

"There is plenty of evidence if you give money to people, they are going to spend it," Paulson has said.

But others disagree.

An October 2002 paper by the National Bureau of Economic Research said that roughly 20 percent of Americans spent the checks. Nearly a third of the people who got checks saved or invested the refund, and the rest used it to pay off bills or debt.

The plan is aimed at keeping America out of a recession. Bush said so much today, while never specifically using the word "recession."

"My advisers and many outside experts expect that our economy will continue to grow over the coming year," the president said, "but at a slower rate than we have enjoyed for the past few years. And there is a risk of a downturn."

The overall stimulus package is likely to also include something for businesses.

The president said he wants businesses -- particularly small businesses -- to spend more. One way would be to increase the tax breaks businesses get for purchasing new goods, such as computers, software, cars and other capital items.

Under current tax law, businesses can write off the cost of the items' depreciation. The government could offer a bonus on that tax deduction for all items purchased this year. With such a tax break, the theory goes, businesses would be more likely to spend money on goods helping the economy.

The president also made a push to have his tax cuts made permanent, something that Democrats have long resisted.

In testimony last week, Federal Reserve Chairman Ben Bernanke said -- while taking no position on the issue -- that making the tax cuts permanent applies to the long-term economy and would not provide the immediate economic stimulus that we need.

With reports from Charles Herman and Daniel Arnall

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