rebates

With over seven million tax-rebate checks set to be sent out next week (one week earlier than planned), much attention will be given to the economic impact, and investors will begin scouring all realms of consumer spending for clues.

Chain stores, in particular, will be in focus, and the information gathered is sure to seep through to market prices. More than $100 billion in checks are expected to be eventually disbursed, which is much more than the dollar amount of tax-rebate checks mailed to Americans in 2001 and 2003.

For example, in 2001, the total amount of tax-rebate checks was $38 billion; in 2003, the tally was about $15 billion in checks and $20 billion in reduced tax withholdings.

According to the White House, "The experience of the 2001 and 2003 tax cuts shows that providing tax relief to families stimulates the broader economy by boosting household spending.

"For example, rebate checks increased total consumption by about 0.8% in the quarter that the 2001 rebates were received, and about 0.6% in the subsequent quarter." As the non-partisan Congressional Budget Office noted, "Most analysts agree that the 2001 rebate stimulated the economy."

Note that the 2001 rebate checks were mailed out in late July, and most of the roughly 100 million checks were sent within 10 weeks.

Staffers at the Federal Reserve in 2005 published a 31-page analysis on the 2003 tax cut (Coronado, Lupton, and Sheiner, Finance and Economics Discussion Series, July 2005), saying in the abstract for the paper that "The Jobs and Growth Tax Relief and Reconciliation Act of 2003 has been described as textbook fiscal stimulus. Using household survey data on the self-reported qualitative response to the tax cuts, we estimate that the boost to aggregate personal consumption expenditures from the child credit rebate and the reduction in withholdings raised the average level of real GDP in the second half of 2003 by 0.2% and by 0.3% in the first half of 2004. We also show that households in the survey were well aware of their tax cuts and tended to spend equally out of the child credit rebate and the reduced withholdings, a result that is contrary to the conventional wisdom."