Economic Stimulus: Good for individuals or the overall economy, not both

When you say “economic stimulus check,” Sherry Morales grins like a Cheshire cat, clasps her hands and pumps them above one shoulder, then the other, as if she’s taking a victory lap. But economists still aren’t confident that the 130 million checks, which start arriving in mailboxes next month and range from $600 for individuals to $1,200 for those who file jointly joint filers, will have a winning effect on the U.S. economy.

Morales plans to invest the money she gets in certificates of deposits – effectively saving the funds – for at least nine months because that’s the “safest place” for the additional money, she said.

But the safest place for individuals, in savings or paying down debt, isn’t what the Bush administration is hoping happens with the estimated total $150 billion tax refund. In order for the “Economic Stimulus Payment” to actually stimulate the economy, taxpayers must buy goods and services with the additional money, something that seems increasingly unlikely in uncertain economic times. 

“Under ordinary circumstances we’d applaud those people, … but in this case it’s not the kind of news that’s going to result in economic stimulus,” said Dr. Maclyn Clouse, a professor of finance at the University of Denver’s Daniels College of Business. “From an economic stimulus standpoint we just need those dollars spent.”

The high price of gas, Wall Street worries and the foreclosure crisis are all making would-be consumers more circumspect when it comes to spending. 

Dan Morales (no relation to Sherry) said that he may buy some new clothes for his 3-year-old daughter, Julie, but that he will put the majority of his economic stimulus check in the bank.

“Just saving for unexpected things, because, like I said, it was unexpected money,” Morales said.

Others plan on spending the money but not shopping with their checks.

“If I’m lucky I can go on a vacation, but [I’ll] probably pay bills,” said Becky Schafer, an Adams County resident. 

The administration used a similar tax refund program to help stimulate the economy in 2003 that included higher-income Americans. This time around, any individual making $75,000 or more annually and couples earning more than $150,000 a year aren’t eligible.

While lower-income taxpayers may be more likely to spend their stimulus checks, they are also more likely to have a backlog of bills to pay.

“There are some people who have to look out for themselves and not try and be the savior of the economy,” Clouse said.

At Denver-based Veracity Credit Consultants, Kevin Kust, the company’s business development manager, sees his fair share of those taxpayers.

He recommends paying down credit card debt or catching up on mortgage payments with the refund check. 

“If you can pay down anything go for it or savings rather than going for the big screen [television],” Kust said.

Of course some consumers will immediately hit the stores with the extra money they receive. In the end, it’s simply a matter of how many dollars are pumped into the economy.

Clouse expects to know what impact the stimulus package had by sometime in June when consumer spending numbers for the previous month become available.

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