Proposed Rebates in 2008: How Will Americans Spend Their Tax Rebate Checks?

Abstract

How effective is economic stimulus in the form of tax rebates? The Recovery Rebates and Economic Stimulus for the American People Act of 2008 amends the Internal Revenue Code to grant tax rebates of the lesser of net income tax liability or $600 to individual taxpayers ($1,200 for married taxpayers filing joint returns) and allows additional rebates of $300 for each child of an eligible debtor. Determining how taxpayers intend to utilize this windfall is a critical step in determining the potential impact of this proposed economic stimulus. The Institute for Financial Literacy, a 501(c)(3) tax exempt nonprofit financial counseling and education organization, posed the following question to former and current clients: "How will you spend the proposed tax rebate?" Over 900 participants answered the question, choosing from the categories of Buy Something, Pay Debt, Put into Retirement Savings, Put into Regular Savings or Other. Demographic information was also collected from survey participants in the categories of gender, age cohorts and geographic region. This report found that most survey respondents intended to Pay Debt (48%) with their prospective tax rebate checks, followed by place funds into Regular Savings (22%), Buy Something (13%), Other (12%) and Retirement Savings (4%). Further study is recommended to determine why Americans are expressing such a significant preference for debt reduction and a low preference for retirement savings at this time. The results of this study may also be an early indication of the educational effectiveness of both the pre-filing Bankruptcy Credit Counseling and the post-filing Bankruptcy Debtor Education.

Keywords: Institute for Financial Literacy, tax rebate, economic stimulus, Proposed rebates in 2008, bankruptcy, credit counseling, debtor education, financial literacy, retirement savings, debt, financial education, BAPCPA