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Stimulus tax cuts will come weekly
President Barack Obama listens to a question.
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TEXT OF STORY
Bill Radke: Later today, President Obama will sign into law a package of economic stimulus. And one of the stimuli is tax cuts. The average citizen will get $400 in tax rebates this year and next. Now the question is, what will you do with the money? Here's Marketplace's Dan Grech reports.
Dan Grech: Rather than a lump sum payment, the stimulus tax cut will be doled out paycheck by paycheck. An average of $8 less in withholding each week. Economists say people tend to save lump sums, while they tend to spend money doled out over time.
Clint Stretch is an expert in tax policy with the consulting firm Deloitte. He says $8 a week adds up.
Clint Stretch: For each individual family it might be a little more gas or it might be going to the movies or something. But what it comes to is $116 billion over two years, and that's what's big enough to make a difference.
But not all economists agree that gradual payments trigger spending. Behavorial economist Dan Ariely favors a $400 lump sum.
Dan Ariely: If you give people the money and you make it feel like it's found money, that's the time that they're likely to spend money.
And to make people even more likely to spend the lump sum, Ariely says it should come in the form of a pre-paid debit card, rather than a rebate check they can stash in their saving account.
I'm Dan Grech for Marketplace.
The $8 a week is not going to spur a darn thing. You can barely buy lunch in manhattan for $8. You can't fill up your car, you MAY be able to see a movie in some of the smaller theatres. I agree with Pedro, people owe too much to take the $8 and spend it. A lotto ticket may be their best invement.
I believe that a tax cut is one of the better options open to policy makers but I see them ignoring one important fact. People owe too much and they finally have realized it. I believe the effects of the tax break will be much smaller then expected because most of this money is destined to pay off debt.
