Stimulus rebates begin arriving

1st payments being direct-deposited to 800,000 taxpayers

April 29, 2008|By Andrea K. Walker | Andrea K. Walker,SUN REPORTER

The first tax rebates began landing in taxpayers' bank accounts ahead of schedule yesterday, kicking off a $168 billion stimulus program to put cash in consumers' pockets and jolt the stalling economy.

Sales-hungry retailers are jostling to capture a share, launching promotions to entice Americans to spend the money in their stores rather than using it to pay bills or stashing it away.

Home Depot is promoting energy-efficient lights and appliances. Sears is kicking in an additional 10 percent for shoppers who put the entire amount into gift cards. Local furniture retailer Gardiner's is offering discounts to its credit card holders. Circuit City will accept refund checks as a form of payment and put any leftover money on a gift card.

The world's largest retailer, Wal-Mart Stores Inc., was caught off guard by the earlier-than-expected payments. It planned to reveal details of its promotions today.

The Internal Revenue Service sped up its timetable for the rebates by switching to a computer system that can process payments daily, enabling it to make deposits in the accounts of 800,000 taxpayers yesterday, today and tomorrow. The IRS will take Thursday off to rev up for 5 million deposits Friday.

Paper checks will begin going out May 9, a week earlier than expected.

More than 130 million households will get the payments, the IRS said. It also announced that eligible taxpayers who normally don't fill out a tax return and don't owe the government money will get an extra six months - until Oct. 15 - to file so they can get the payments.

The amounts are hefty enough to make retailers salivate: $600 per person - $1,200 for married couples - and for parents, an extra $300 per child.

"Clearly, retailers have been challenged since the holiday season," said Scott Krugman, a vice president at the National Retail Federation, which expects rebates to add $43 billion to the economy. "Consumers have been hibernating. Retailers see the rebate checks as an opportunity to wake them up and get them into their stores."

But some economists think debt-strapped consumers won't spend the bulk of the windfall on new purchases, instead choosing to save it or pay down debt.

"I think it will be a very small blip on the radar screen for retailers," said Britt Beemer, owner of consumer research firm America's Research Group. He said consumers will spend 70 percent of their rebates to pay bills. "Consumers are so heavily covered in debt ... they have to get their credit card bills under control."

According to an Associated Press-AOL Money & Finance poll conducted this month, 59 percent of those surveyed expect to use their rebates to pay bills and reduce debt. Democrats in Congress have said that the tax rebates aren't big enough and have been pushing for a second stimulus package.

Many shoppers in Towson yesterday said they weren't planning shopping sprees.

"I'm putting it in the bank," said Patricia Brown, 47, a paralegal from Towson, adding that she planned to save the money to help pay for a coming move.

Bruce Wortham, 46, a hospital manager from Northeast Baltimore and a father of three, said he would be using the money to catch up on bills.

"It was tolerable before gas went up and the utilities skyrocketed," he said. "Food is more expensive, too. It's seems like you can't get ahead. Every time you take one step forward, you get knocked back two."

Other consumers will spend on necessities instead of splurging on big-ticket items. A Goldman Sachs survey of more than 2,500 consumers found that discount retailers, food retailers and department stores will benefit the most. Lower-income consumers in particular may need to catch up on "staple" purchases, the survey found.

"The question is what they will be spending on," said Krugman, of the retailers' trade group. "We think consumers will be focusing on necessities, really using the checks to offset the rising cost of food and gas."

Despite the surveys, retailers are hoping to get what traction they can from the rebates, even if it's not much.

"If people are making the decision to spend their checks at retail, we wanted to make sure that they considered Sears and Lands' End and Kmart when they did that," said Kirsten Whipple, a spokeswoman for Sears Holding Corp.

Tom Saquella, president of the Maryland Retailers Association, said he expects more retailers to offer promotions in the coming days and weeks.

"Things are really difficult right now," Saquella said. "Even if retailers have some doubt on how much a difference the rebates will make, it's the only thing out there."

Some economists say that consumers may want to make the prudent choice to save but will spend instead.

"Consumers are really in the need of a consumption pick-me-up," said Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic consulting firm. "Consumers spent freely during that mid-decade boom, and now in recent months they've been treated much less. The rebate check will give them an opportunity to treat themselves again."

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