Unlikely as it might have seemed last year, many Americans may now face an unexpected monetary gift.

The measure, The Recovery Rebates and Economic Stimulus for the American People Act of 2008 (H.R. 5140), was introduced in the House of Representatives Monday, and passed by the full house Tuesday.

In this version, American taxpayers will receive nearly $109 billion in rebates.

The Senate Finance Committee introduced its own version of the legislation last Wednesday, and the Majority Leader in the upper house has said he wanted to have the legislation voted on before the President’s Day break.

The idea behind the rebate, which was announced last week and called a bipartisan agreement, is to jump start the U.S. economy by pumping in additional money.

The President estimates that the stimulus package could create nearly half a million new jobs.
Individuals who have at least $3,000 in earned income would receive $300; a single person would get $600; couples would receive $1,200 and each child that you have nets you an additional $300. The rebate would be based on the 2007 tax returns, and would begin arriving in the mail 60 days after the legislation is approved by Congress and the president.

According to a Treasury Department spokesperson, it will take approximately 10 weeks to for all eligible taxpayers to receive a check. There is one caveat: If you have any federal debts (e.g. taxes owed), your rebate would be applied to that.
So, what to do with your tax rebate?

“By definition a stimulus requires consumers to spend,” pointed out Keith Leggett, senior economist with the American Bankers Association. “What that gets into is what (one economist) talked about in the ’30s. If you save, you as an individual will become wealthier because of increased savings, but that leads to a reduction in output and employment in the economy.

“On the other hand,” continued Leggett . . . if you spend it, (the rebate) goes to retailers or the businessman who deposit money in the bank. It ends up in the the bank either way. But spending it gets more bang for the buck. . . When you are spending, you insure that somebody else is employed, they have income, and they will turn around and spend; that generates the multiplier effect in the economy.”

Leggett said spending would give the economy a quick boost within a six month period.
According to Rachelle Bernstein, vice president tax counsel for the National Retail Federation (NRF), the way the rebate might work is “people would spend the money on goods and services and . . . This would create demand because retailers and others provider will sell larger quantities . . . that puts more people to work in terms of making goods and providing the services needed by the retailer’s and other front-line providers.”

And while she acknowledges that many goods are not manufactured in America, Bernstein said there are a significant number of jobs in the nation that depend on bringing those foreign goods into the country and to market. “There will be more demand for those types of ancillary functions related to bringing the product to market.”

The NRF tax consultant also noted that there are still “many, many, many” goods and services made in America.

“We in the retail industry are feeling the slow down in the economy very severely. We do think this is something, based on past experiences, will give a jump start to consumer spending. And hopefully that gives the jump start needed to bring things along better than would happen otherwise.”

Saving and investing, on the other hand are long-term, and lead to capital formation, Leggett said. “That gives each worker more capital to work with, and is going to make them more productive. But the problem is it doesn’t benefit the economy immediately.

“When you look at the stimulus package, policy makers are really trying to buy insurance for the economy, and for it to be effective, people need to spend it,” Leggett added.