President Bush sounded a hopeful note Friday when he called for as much as $150 billion in tax rebates to goose the economy back into high gear. "Letting Americans keep more of their own money should increase consumer spending and lift our economy at a time when people otherwise might spend less," he said.
Though no specific amounts have been set, the buzz in Washington was that rebates would be in the range of $800 for individuals and $1,600 for households.
Would it work? Nowhere was the challenge of this proposition more evident than South Los Angeles, where tough economic times for families tend to be that much tougher.
"Let me show you something," said Israel Bolivar, 53, when asked how he'd spend an extra $800. He produced a pay slip from the hospital where he works as an emergency-room technician.
Bolivar pointed at his total pay: $1,223.98 for two weeks' work. Then he pointed at the net take-home amount after taxes and other deductions: $571.05. "That's all I got left," Bolivar said. "That's supposed to be enough for two weeks."
So $800 would help, right?
"After I pay my bills, I don't even know if I'd break even," Bolivar answered.
The president, lawmakers and many economists believe that if you just give people a fistful of cash, they'll go out and buy the cars, stoves and clothes that keep the U.S. economy purring.
Consumer spending accounts for more than two-thirds of economic activity in this country. With a recession looming (or perhaps already here), much is riding on keeping Americans shopping.
It's not enough just to make Visa or MasterCard happy for some past purchase. The economy benefits primarily when new stuff gets bought.
When Bush cut taxes in 2001, about $38 billion in rebates was sent to 89.5 million taxpayers -- up to $300 for individuals and $600 for families.
In a recent study, economists Sumit Agarwal of the Federal Reserve Bank of Chicago, Chunlin Liu of the University of Nevada and Nicholas Souleles of the Wharton School used credit card data to determine that many consumers used their 2001 rebates initially to pay down debt.
But over ensuing months, they increased spending by an average $200.
Jeff Nugent, an economics professor at USC, said the wild card this time was that many people weren't as well off as they might have been in 2001. This could affect how much of the rebates ends up being spent on new clothes, shoes and other goodies.
