Check's In the Mail in May - Your Plans?

The Stimulus and the Response

President Bush and the Congress has signed the Welfare for Everyone er, Economic Stimulus Package that will go out to some 150 million Americans starting in May. Most taxpayers will receive $600 if you earned more than $3,000 in 2007, $1200 for married taxpayers, and $300 per child under 17, according to the package details. Here are some more details via WhiteHouse.gov that you probably didn’t know:

- For 2008. Taxes on the first 6,000 you earn ($12,000 for married couples) will not be taxed (previously the tax rate was 10% ). Your adjusted gross income should be less than $75,000 ($150K for couples), including salary and bonuses to receive the full check. Phase-outs begin above these income levels.

- The total spending will be to the tune of $100 BILLION+. Most of us don’t understand the concept of how much money $100,000,000,000 is, but it is a lot of money being sent out to Americans.

So, why is the government doing this? Besides it being an election year and the slowing of the economy, the government seeks to try to soften the blow to the economy by giving you a cushion of cash to fall on. The theory is that if you give people money, they will go out and spend it on American Products that will directly affect the US Economy.

Is it a great idea? I don’t think it’s the best idea, considering some of the news on the ground about how people actually plan to spend their checks. From a Bloomberg article we find that Americans have other plans rather than spending the money on the good old USA:

The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.

Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.

``People in Washington assume that about 40 percent of the money will be spent,'' said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. ``Much less would be disappointing.''

I bet it would be. Do "People in Washington" lose consciousness after they enter the Beltway?

There are so many things in this little snippet that I find rather surprising. Less than 20% plan to spend the money—which, honestly, I have to see myself. Expect a huge “Economic Stimulus Sale” Blitz from US companies in May and June to compete with consumers' discipline to save and pay off debt. Then, consider the fact the most of the products you’ll be buying—clothing, computers and other high-end electronics, go to other countries, most likely China. I'm not going to lie to you--I'm blessed to be in a fairly decent spot financially, and that check is going to a splurge purchase--I got my eyes on a new TV or an airline ticket for my family's summer family reunion. I bet I'm not alone.

Lastly, remember that the US Government doesn’t have billions of dollars stored up in a bank somewhere to dole out when times get bad. They will most like follow the China Boon Economic stimulus plan, which is described below:

1. Borrow money from China for the US Economic Stimulus Package and give to Americans to spend.

2. Americans spend money at companies that send most of the profits back to China.

3. The US Government pays back the original money, with interest.

Sound good? Well, it’s probably the most likely scenario. I’d be pleasantly surprised if we use our Federal government check to pay off debt and save for later. The Feds would be happy if you spend the money. Personally, I think the best option would have been to spend the money on improving our Country’s infrastructure and educational pursuits. It would have taken longer to make an impact, but I think we would be better off than we would in say, 6 months from now when we find out the economic stimulus package didn’t go according to plan.

See you next week.