Consumer spending crucial in tax rebate plan

By Kevin Wilson: Freedom New Mexico

It’s still up in the air whether the United States is heading for a recession. Likewise, it’s in the air if rumored stimulus packages would do anything to slow or stop one.

President Bush on Friday pushed for an economic stimulus package, consisting of as much as $150 billion worth of tax relief, including tax rebates of up to $800 for individuals and $1,600 for married couples.

The rationale is simple: A recession would cost the country about $500 billion, so it’s a calculated risk to give $150 billion to taxpayers, then encourage them to spend it on items they would normally bypass — perhaps a new high-definition television or a refrigerator.

“People will possibly buy something a little nicer, or something they’ve been needing for a while,” said Ben McDaniel, part-owner and operations manager for McDaniel’s in Clovis.

“I don’t see it being an enormous difference. But for some people that is the amount of a (normal tax) refund and some people don’t get any refund.”

The challenge, Eastern New Mexico University finance professor David Hemley said, is making sure that money gets spent.

“In order to make something like this work,” Hemley said, “you have to get it into the hands of the people who are going to spend the money.”

Hemley said the economy consists of four sectors — household or consumer, business, government and foreign. The biggest spending sector is easily consumer, though Hemley said foreign spending is going up thanks to the weakened U.S. dollar. A stimulus package is focused solely on consumer spending.

The White House also favors tax breaks for business investment, while Democratic congressional leaders are pushing smaller rebate checks and more aid for food stamp recipients and the unemployed.

Hemley isn’t sure how the stimulus package would play out, but he sees the rational in a plan focusing on food stamp recipients instead of people who would just pay off debt from Christmas shopping and winter vacations.

“The lower income (person) is going to go out and spend that money,” Hemley said. “The problem with the middle and the higher income, they may take those monies and just go pay debt. If they’re going to go off and pay debt, that’s not going to be much of a stimulus.”