tax

Is tax 'rebate' doomed to fail?

"That's a bad idea," says Epley. "If you get a check that just goes right into your account, you're not likely to spend that income at any different rate than you would spend any other income."

In fact, the biggest bang for the rebate buck would be to pay it out in cash, Epley says.

"Small bills, in fact; fives and 10s," he says. "You would be much more likely to fritter that away."

Making a bonus work
Irony runs rampant through the tax-rebate debate. After all, this is the Internal Revenue Service giving us money back -- not exactly the agency's strong suit.

In addition, the government is saying times are so dire that we should go out and spend -- not exactly our first instinct in such circumstances.

To encourage spending, Epley suggests the government partner with businesses to build incentives for people to put their rebate to work.

For example, the government and businesses could schedule a national shopping day or weekend. This could be planned to coincide with a major holiday or state tax-free weekends.

Other suggestions include rebate coupons or punch cards redeemable at retailers.

However, some people remain skeptical of the true intention behind the rebates. They suspect the government may have ulterior motives.

“Is it anything more than a bunch of elected officials getting together and quickly sending us money to buy us off?”

Bob Sullivan, author of "Gotcha Capitalism" and iconoclastic voice of MSNBC's The Red Tape Chronicles, says it may be votes -- not stock prices -- that the government hopes to stimulate. He finds the timing of Rebate '08 more than coincidental.

"It's very transparent to me what's happening here," he says. "Both Republicans and Democrats got together to say, 'Well, the one thing we want to do is make people feel a little bit better about us in the middle of the election cycle.' There isn't a lot of good data to back up what kind of boost this can give to the economy, and unless I'm missing something, there is nothing in the tax rebates that addresses any of the fundamental problems that brought us here or can get us out.

"Is it anything more than a bunch of elected officials getting together and quickly sending us money to buy us off? I really don't think it's any more complicated than that."

On the other hand, Dooley believes the rebates have real value, even if they are politically motivated.

"You might argue that bill paying is not an altogether bad use of the rebate," he says.

If taxpayers use their checks to pay down credit card debt or make their mortgage payment, it's all ballast to steady a floundering economy, he says.

"If nothing else, you're staying in the consumer game for a while because you're not being foreclosed on or having other dreadful financial circumstances come to roost that are not going to help your spending behavior very much," Dooley says.

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.20%  0.07 4.27%
15 year fixed 3.27%  0.06 3.21%
5/1 ARM 3.53%  0.15 3.38%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.29% --0.00 4.29%
50K FICO-based HELOC 4.04% --0.00 4.04%
100K FICO-based HELOC 3.89% --0.00 3.89%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.98% --0.00 2.98%
60 month new car loan 3.24% --0.00 3.24%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.95%  0.04 0.91%
2 Year CD 1.15%  0.02 1.13%
5 Year CD 1.75%  0.01 1.74%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.77%  0.01 15.78%
Cash Back Cards 16.48% --0.00 16.48%
Low Interest Cards 10.96% --0.00 10.96%
 
Next
advertisement
DAILY TAX TIP NEWSLETTER

Get expert advice during tax season on tax preparation and tips for cutting your tax bill.

advertisement

Connect with us