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Stimulus tax cuts will come weekly
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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.