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Rebate: Save it, spend it or pay bills?

Rebate: Save it, spend it or pay bills?

Juan Thomas fell behind on his bills after he was injured on the job and unable to work for a couple

Juan Thomas fell behind on his bills after he was injured on the job and unable to work for a couple of months.

The 45-year-old Albany resident, who works for the New York state Office of General Services’ special events office, said he’ll probably use his government rebate check to pay “just regular bills.” Thomas received workers’ compensation when he was hurt, “but that’s about half of your regular pay,” he said.

“It helps out a lot of people,” Thomas said of the economic stimulus package approved by Congress and signed by President Bush last week. “If people are behind on their bills, it gives them a chance to catch up.” He said the rebate check will enable him to use his tax refund in other ways, such as sending money to his daughter in college.

The $168 billion economic stimulus package includes rebates of $600 to $1,200 for most taxpayers; the hope is that they’ll spend the money, giving the country’s businesses a much-needed infusion of cash and staving off a protracted recession. Officials are also hoping that the two big interest rate cuts the Federal Reserve made last month will help.

But it’s unclear what sort of impact the checks, which will begin to arrive in May, will have. In an Associated Press-Ipsos poll, just 19 percent of the people surveyed said they plan to go out and spend the money, while 45 percent said they would use it to pay bills and another 32 percent said they would save or invest it.

worries about economy

“I’m putting it toward credit cards,” said 31-year-old Michael Short of Troy while walking through downtown Schenectady, where he works. He said the check would be helpful. As to whether the economic stimulus package would salvage the economy, he shrugged. “I don’t think so,” he said.

“We thought we’d put it in our bank account,” said 60-year-old Janet Mongillo of Scotia, who works part time doing nails at Majestic Beauty Salon in Schenectady. “You never know if the stove or the furnace is going to go.” She said she and her husband, who is retired, live on a fixed income. “We’ll probably use it for bills,” she said.

Mongillo said she’s worried about the economy; she was also pessimistic about the economic stimulus package and its broader impact on the economy. “It’s only going to make a dent,” she said.

Polls show that many people already think the economy is in its first recession since 2001. Grim reports indicate that unemployment jumped in December and that January saw the first loss of payroll jobs in more than four years. Generally, the economy is considered to be in a recession when national productivity declines for two quarters — six months — in a row. Housing sales have also slumped, default rates are climbing and many people are seeing their homes lose value.

Sand Lake resident Pamela Semeiks, a computer programmer for the state, said her rebate money will help pay for her daughter’s wedding in May, which is expected to cost $8,000.

Like others, Semeiks, 54, expressed skepticism about the economic stimulus package. “I don’t think it’s going to do anything to stimulate the economy,” she said. She added that she’s not too worried about the economy and that nobody knows for sure whether the U.S. is in a recession. “I think the fear mongering is making it worse,” she said.

incentive to shop

Asked how he would use his rebate money, Albany resident Robert Payne, 50, laughed and said, “I haven’t even thought about it. I’m probably just going to pay bills. It’s not like it’s enough money to go across the country or something. If there’s something that’s annoying, you can pay it off.”

Payne works as a rate setter for the state Department of Health and is an economist by training. He said the stimulus package will have an impact, though the nature of that impact remains to be seen. If the country is already in recession, the rebate checks will provide a bit of a cushion. But if the country is at “the tipping point, the [rebate checks] could prevent it from going into recession. [Federal Reserve Chairman Ben Bernanke] said there’s a light at the end of the tunnel. The fact that he’s hedging his language indicates it could go either way.

“Very few people are going to save this money,” Payne added. “Even if they’re saving it, the banks can use it: they can lend it.”

Whether consumers go out and spend their rebate checks remains to be seen, according to Rebecca Flach, a spokeswoman for the Retail Council of New York State. “Is this really going to work or not? Are people going to save or pay their credit cards rather than buying new items?”

“Clearly,” Flach said, “anything that gives consumers a little bit of disposable income gives them an incentive to shop.”

CONFIDENCE DROPS

But she added that consumers are under a lot of pressure and that the same factors that made for a lackluster holiday shopping season are still in play. “It’s difficult for consumers to get out and shop if they don’t have money,” she said. “They’re dealing with gas prices, heating bills, the high cost of food. Consumer confidence is down. There’s been a lot of negative discussion about what’s going on.”

While some New York retailers have been hard hit by the current economic woes, others have fared fairly well, Flach said. “It depends on who you talk to,” she said. “Some had a bad Christmas season. Some made out well. What we’re hearing in the national news is that publicly traded retailers have been hit hard.”

Retailers typically do well in January, when people are redeeming gift cards they received over the holidays. But this year, there have been disquieting reports that consumers have been using gift cards to purchase necessities, such as food, diapers and laundry detergent, rather than luxury items. This year, the nation’s retailers experienced their worst January in almost four decades.

According to the Siena Research Institute, consumer confidence in New York state dropped 4.1 points in January and is down 25 points from a year ago. At the same time, the nation’s confidence increased by 2.9 percent. At 64.9, New York’s overall consumer confidence is 13.5 points below the nation’s 78.4 confidence level, according to the poll. The consumer confidence index measures people’s willingness to spend.

credit card debt

The survey also found that fewer consumers planned to purchase cars and trucks, computers and homes.

New York’s consumer confidence has always been lower than the rest of the country’s — the Siena Research Institute began a separate measure of consumer index in New York in 1999 — because the state never really recovered from the 1991 recession and the steady loss of manufacturing jobs, said Dr. Douglas Lonnstrom, director of the Siena Research Institute. But he noted that when things are going well, consumer confidence is generally around 100 points. “[New York and the rest of the country] are both bad,” he said. “We’re just worse.”

Lonnstrom said people can use their rebate checks in a variety of ways — saving, spending, paying bills, making a down payment on a large item, such as a flat-screen television, even gambling — but the hope is that they’ll spend without going deeper into debt. “We’ve got people out there with $10,000 to $20,000 in credit card debt,” he said. “We’re hoping people spend it, and I think the majority will. The concern is that it’s just a one-shot injection into the system.” Particularly troubling is that so far, interest rate cuts have had virtually no effect on consumer confidence, he said.

Most taxpayers will receive a check of up to $600 for individuals and $1,200 for couples, with an additional $300 per child. People earning too little to pay taxes but at least $3,000 — including elderly people whose main source of income is Social Security and veterans who live on disability payments — will get $300 if single or $600 if a couple. Rebates will be reduced by 5 percent of the amount of income in excess of $75,000 for individuals and $150,000 for couples.

Only people who file a 2007 tax return will receive a rebate check.

BUSINESS tax breaks

The stimulus package also contains tax breaks for businesses to spur investment in new plants and equipment and provisions aimed at helping homeowners refinance into more affordable mortgages.

In the Associated Press-Ipsos poll, nearly half of the people surveyed said the way to get the country out of a recession would be to withdraw from Iraq. Forty-eight percent said it would help the country’s economic problems “a great deal,” and an additional 20 percent said it would help somewhat. Over 40 percent said increasing government spending on health care, education and housing programs would help a great deal; 36 percent said cutting taxes would help.

Lonnstrom said that the current economic downturn seems different than the recession of 2001.

“Things might be a little tougher now,” he said. “People are looking at nothing but bad news.”

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