Rebates Coming: Spend or Save?

April 27, 2008— -- If all goes according to the economics textbook, tax rebates will hit millions of Americans' bank accounts, they'll turn around and spend, spend, spend -- stimulating economic growth and confidence in the flagging economy.

To find out more about the stimulus package CLICK HERE, and to learn when you should be getting your rebate, CLICK HERE.

More than 130 million U.S. households are eligible for the checks. Individuals could get up to $600, couples up to $1,200 with an additional $300 per child. In total about $120 billion will be doled out over the next two months.

People with higher incomes won't qualify for the rebates, but for single tax filers if your gross adjusted income is more than $75,000 the check won't be in the mail. Same goes for those who file a joint return with a gross adjusted income of more than $150,000.

Still for plan to work, people must spend the money. An ABC News poll showed that 32 percent of those expecting rebates planned to save or invest it, not spend it.

"If people save it, it's going to have very little effect on the economy," New York University economist John Leahy said.

Spending the money on anything from gas and groceries to flat screen TVs is about the only way to spur broad economic growth. Even if people pay off existing debt with the rebate money Leahy says that could free them up to shop.

If big retailers have their say, every dime of your tax rebate will be spent. Many retailers are offering incentives to trade in rebate checks.

Grocery chains Albertsons and Kroger and department stores Sears and Kmart are offering consumers an extra 10 percent for every $300 gift certificate they buy.

Home Depot is going green, urging customers to stretch their tax rebate dollars by investing in energy-saving products. Some retailers, like Walmart, are even considering a plan to cash tax rebates checks at no charge.

Sony USA reduced the price of one popular high definition TV and then ran a series of ads targeting the tax rebates. Sales went up, just on the expectation that consumers would have more money in their pockets.

At the Best Buy store in Burbank, Calif., foot traffic and interest in big-ticket items are up.

"I've heard from the customers I've talked to, they are looking to spend those rebate checks on consumer electronics," Best Buy customer service associate Brandon Pywell said.

The spending could help the economy move forward, but it's not likely to fix the bigger problem, Leahy said.

"The core problem in the economy is that people don't know what assets are worth," he said. "They don't know what their house's worth."

A one-time tax rebate is not going to solve the problem, Leahy said.

"Either markets are going to work this out over time" or, he said, the Federal Reserve's management of interest rates will eventually bring stability to the market.

Rosemary Segal, a teacher and single mother of four living in Culver City, Calif., said she expects a $1,900 rebate, which she said will come in handy to pay for the basics of life.

While she isn't pinching pennies, she said the price of gas, food, and insurance are taking such a big bite out of her household budget the rebate check won't go very far.

"Anything is helpful," she says. "But in these times? It's just a drop in the bucket."

Segal said she doubts the tax rebate will improve the broader economic conditions that are making her life so difficult right now.

As she was driving home from anther expensive fill-up at the gas station she might have figured out where her rebate is going.

"The maintenance light went on for the car," she said. "That's a cost I didn't anticipate that I need to do."