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![handle is hein.taxfoundation/iretcgadv0116 and id is 1 raw text is: September 18, 2001 No. 119
THE ECONOMY NEEDS MORE THIS
YEAR THAN A TAX REBATE
The terrorist disaster makes it essential to
strengthen the economy. With limited money for
further tax relief, we must use it as effectively as
possible. The current economic weakness is due to
year. (Technically, it is much more complicated.
Congress used a tax credit instead of the 10%
bracket for 2001, and the rebate checks are advance
payments of the tax credit. The Treasury is
computing the rebate checks using 2000 tax returns
because returns for 2001 are not yet available.
Although taxpayers will be required to do a
reconciliation when they file their 2001 tax returns,
they will not be required to repay the government if
they received too much but will be able to claim the
difference if they are owed more.)
Congress hopes the rebate will help jump start
a sluggish economy by prodding consumers to spend
more. In the words of the Conference Report,
[T]he issuance of [rebate] checks ... will deliver
economic stimulus to the economy more rapidly...
In reality, though, the rebate is a return to the type
of Keynesian thinking that proved so disappointing
slumping investment. The best
write-off of outlays for
equipment and structures.
Faster write-offs are better at
permanently raising investment
in a non-distorting way than
are an investment tax credit
(ITC) or a cut in the capital
gains or corporate tax rates.
The U.S. Treasury began
sending out tax rebate checks
in mid July and will have the
bulk of them mailed by the
end of September. The checks
are up to $300 for a single
fix, by far, is faster
The terrorist
essential to
economy. With
fix, by far, is
outlays for
structures.
in the 1970s; it
lisaster makes it
strengthen the
limited money for
faster write-off of
equipment and
will have little economic effect,
notwithstanding its political
E appeal. First, the rebate
checks will not generate much
increased consumer spending.
Second, a government-
engineered burst of consump-
tion is not the path to a
stronger economy.
Economic theory, public
opinion surveys, and early
economic data all suggest that
people will not rush out and
E spend their rebate checks. In a
Washington Post-ABC News
filer, $500 for a head of household, and $600 for a
couple. The checks will total $39 billion and will
go to almost 92 million households.
Congress added the rebate to the Economic
Growth and Tax Relief Act of 2001. In essence, the
rebate is advance payment of the tax relief provided
by the new 10% tax bracket that the President had
first proposed, made retroactive to the start of the
poll taken in June, only about 20% of those polled
said they planned to spend the rebates on extra
consumption; roughly two-thirds said they would
save the money or use it to pay down bills (a type
of saving). In a USA Today-CNN-Gallup poll in
July, just 17% said they planned to spend the money
on consumption while 79% said they would save it
or use it to pay down bills. The latest data from the
government's Bureau of Economic Analysis indicate
Institute for
Research on the
Economics of
Taxation
further tax relief, we must use it
as effectively as possible. The
,current economic weakness is due
to slumping investment. The best
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to inorming the
public about policies that will promote economic growth and efficient operation of the free market economy.
1730 K Street, N., Suite 910, Washington, D.C. 20006
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