Henry Paulson, the Unites States Treasury Secretary announced on Friday that Congress has approved the $167 billion, debt financed, Economic stimulus package, and that the IRS will be working through the tax season in order to send out the “rebate” checks starting in May of 2008.
I hate to break the news to everyone, putting the country even further in debt isn’t going to provide any long term stimulus to the economy, the IRS has enough trouble keeping up with tax season without adding the task of sending out millions of rebate checks, and technically these are not rebate checks, they are prepayment checks, there is a difference.
While everyone in Congress and the media are talking about Rebate checks, when you visit the Internal Revenue Service they are referring to “advance payment checks”. Is there a difference? Yes! Quite a bit. A rebate is generally understood to be a “giving back” of funds that were already paid. If these were true rebate checks, they would be a refund of taxes previously paid. But in fact, the checks will be prepayments of tax refunds. Details are sketchy right now, but I would expect that with the prepayment checks going out in May, there will be fewer and smaller tax refunds in early 2009.
It is also unlikely that he so-called rebate checks will help the economy. The idea behind the checks is that the people would run with the money to their nearest store and spend it on some type of “stuff”. This would give retailers a boost and keep the economy from falling into recession. Yet, when prepayment checks were issued in 2001, over half the recipients used the money for savings or paying down debt. It sounds like this time won’t be any different. According to the surveys I have seen, most people plan to use their rebate check to pay down debt.
For me, I’ll be sending my check right back to the IRS. It will help towards paying my quarterly estimated tax payments. What will you be doing with your prepayment check?