WASHINGTON – The poor are the people most likely to spend a tax rebate, if they are handed one in an economic revival plan. Whether that happens depends on who prevails — the White House or the Democrats who run Congress.
Democrats want to make sure rebates get to more of the poor, including those who have jobs but earn too little to pay income taxes.
The idea is the more that people spend, the more it will energize an economy threatening to slide into a recession for the first time since 2001. According to many economists, the lower that people are on the income ladder, the more probable it is that they will spend a rebate and spend it quickly — just the shot for the ailing economy. These people are more likely to be living from one paycheck to the next, without other assets to draw on.
"There's a risk of a downturn" in the economy, President Bush said Saturday in his weekly radio address. "Congress and my administration need to work together to enact an economic growth package as soon as possible," he said.
The White House, for now, envisions providing one-time rebate checks to people who pay federal income taxes. That would leave out millions of the working poor, who do not make enough to pay income taxes but do pay Social Security and Medicare payroll taxes.
Families of four earning less than $24,900 a year would not get a rebate under the White House approach, said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a research group that focuses on how government programs affect the poor and middle class.
Stone estimates that about 22 million households file income tax returns but do not pay that tax because their earnings are so low. An additional 22 million households do not file a return, he said. This group includes many older people on fixed incomes, he said.
Bush is not saying how much the rebate could run. Congressional aides say the White House is considering up to $800 for individuals and $1,600 for married couples.
Treasury Secretary Henry Paulson said Bush "is focused on broad-based tax relief for those who are paying taxes. And that's — that was the principle he laid out. This is something that has worked well before. It's worked in 2001, worked in 2003. Get to consumers; put money in the hands of people, letting them spend it rather than the government spend it."
Two-thirds of those who received rebates in 2001 spent the money in the first six months, studies have indicated.
Rich Cichowski, in Tallahassee, Fla., said if he got a rebate, he probably would pay off some medical bills. Cichowski, 48, said he has had back surgery and is not working now.
Brian Bethune, an economist at Global Insight, suggested that rebate checks go out to everyone who files an income tax return, regardless of whether they pay any income tax. "It should be no strings attached," he said. "That would include more people in the net, including more of the working poor," he said.
Democratic leaders are considering a $500 rebate for individuals, according to aides involved in the talks. Details for couples and people with children are being negotiated.
Democrats also are looking at ways to make sure more of the poor get the rebates. Lawmakers hope Bush can accept plans under consideration to give the rebates to tens of millions of filers who would not get checks under the White House approach.
To this end, the rebates could be limited to individuals with incomes of $85,000 or less and couples with incomes of $110,000 or less, said congressional aides, speaking on condition of anonymity because no final decisions had been made.
Some economists said linking a rebate check to people who pay Social Security taxes is a better way to draw in the working poor. That is because the government imposes Social Security taxes on all workers, regardless of whether the person pays income tax. One drawback to this idea is that it would leave out people who do not have a work history and never have paid Social Security taxes.
Democratic presidential contender Barack Obama has suggested a one-time $250 payment to Social Security recipients as one way to help energize the economy.
Rebates aside, House Democrats and Republicans are considering increases in food stamps and higher unemployment benefits as part of an economic rescue measure. The goal is some relief for the poor, hardest hit by high energy and food prices and a deteriorating employment climate.
"Democrats stand ready to work with the president and congressional Republicans to put together a bipartisan package including tax rebates for most Americans, and one-time increases in programs directed at those who are bearing the heaviest burdens in this economy," Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, said in the Democratic radio address Saturday.
In terms of the biggest bang per buck, Federal Reserve Chairman Ben Bernanke said it probably would come from tax rebates or other payments to low- or moderate-income people "who are likely to spend quickly."