Argument: Tax rebates do not always lead to increased spending/stimulation

Issue Report: Bush economic stimulus plan


  • Congressional Budget Office. “Options for Responding to Short-Term Economic Weakness”. January 2008 – “Most studies of purely temporary, one-time changes in taxes have suggested that they have only a moderate effect on household consumption. Theory predicts that households not facing liquidity constraints will not alter consumption very much in response to a temporary change in income because it has a relatively small effect on lifetime wealth. For example, studies of the 1975 rebate (and earlier tax changes) suggested that only 12 percent to 24 percent of the rebate was consumed in the quarter that it was received.”
  • Steve Chapman. “Fiscal Stimulus Folly”. January 17, 2008 – “Giving money to people, as Obama urges, is the most direct type of stimulus. Oddly, though, there are only paltry grounds to prove it actually works. In 2001, the Treasury mailed rebates of $300 to $600 to taxpaying households, something the Bush administration later credited for invigorating the economy. In reality, later studies found, people generally declined to go out and spend, preferring to save the money or pay down debt. The booster rocket never left the launch pad.”
  • “This ‘Economic Stimulus’ Is a REALLY Bad Idea”. Eugene, Daily Kos. Jan 18, 2008 – “Bush’s argument is that ‘Letting Americans keep more of their money should increase consumer spending.’ But will it really? As dlindorff explains it is not likely to have that effect at all. The rebate will be used by the vast majority of households to pay down debt, or keep pace with soaring costs of living. Others will bank the money. Only a fool would go to the mall with it.”
  • IUSB Economics Professor Lane David said in January, 2008 – “The problem is that both the empirical evidence and theory tells us that tax rebates don’t work to stimulate the economy. And we only have to look back to the recession of 2001 when they did exactly this to see that they don’t work. Consumers spent less than 20 percent of what they received from those tax rebates and it really didn’t make a dent on the economy at all.”[1]
  • “Could Tax Rebate Checks Help the Economy?”. Fox. January 21st, 2008 – “[IUSB Economics professor Lane] David argues that this time, it wouldn’t be any different because most people would put the money away or use it for necessities rather than pumping it into retail goods and services.
Melanie Johnson says, ‘I’d pay bills or use it for gas for my vehicle.’
McDonald says, ‘With the way economics are right now I would bank it.’
Danielle Barber says, ‘Probably just pay my bills.’
John Dezamitz says, ‘Stick it in the bank.'”