Proposed tax rebate: Spend it or save it?

President Bush may hope taxpayers use their proposed rebate checks for consumer spending to give the economy a jolt.

But if Susinn MacMerchys of Everett or Tony Martinez of Mukilteo are typical, that newfound money won’t be passing into many cash registers.

“My tax rebate will be spent on medical bills, and prescriptions that insurance does not cover,” MacMerchys said.

Martinez said he would use the money to make an extra payment on his mortgage.

In fact, many members of The Herald’s Reader Network said they would focus on paying off debts or saving for bad times ahead. The comments from the network are not the results of a scientific survey, just a reflection of what some people are thinking.

The remarks followed an economic stimulus package unveiled by President Bush worth up to $150 billion as an antidote to a possible recession. Part of the package includes tax rebates said to range up to $800 for individual taxpayers and up to $1,600 for married couples. Proposals from Congress also would add money for more food stamps and unemployment benefits.

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For some, the proposed rebates could pay down credit card debt or provide a nice start to a rainy day savings account.

That’s what Howard Bono encourages people to do. The owner of Old West Mortgage in Everett teaches financial advice and has written a book on that subject.

“Don’t worry about the economy, because most people are going to do what the administration wants us to do — buy big TVs or iPods or whatever,” Bono said. “I just encourage my clients to put it away or pay down debt.”

Bono added that if a large number of people put rebate checks into savings accounts, that influx of cash could help banks left on shaky ground by the mortgage mess.

Perhaps with a wary eye toward the future, his advice isn’t going unheard.

“I would save it for a rainy day, which is sure to come,” said Richard Reupert of Snohomish.

“If, by chance, we are eligible, we would be one of the spoil sports and not spend it,” said Jake Ritland of Marysville. “The way the economy is going under this administration, our refund would go right into our savings account, only to be spent on bills later. The amount they are talking about is not enough to get excited about to go out and buy anything of any significance.”

Catherine Wilson of Monroe said it would be enough to “pay off some bills and go out for a nice dinner” with her family.

Dick Conway, a Seattle-based economist, said the stimulus package as proposed is roughly equal to 1 percent of the gross domestic product. That theoretically is big enough to save the economy from slipping into recession.

And he agreed that the rebate checks could still have a positive effect even if many taxpayers use them to pay off debts instead of for pure consumer spending.

“Say you owe $800 in medical bills and you use the rebate to cover that. Down the road, you do have more money to spend because the medical bills already have been paid for,” Conway said.

In the Puget Sound area, however, where the average household income is more than $111,000 annually and the economy is performing better than average, the effect of the stimulus package might be more slight, Conway said.

Diane McRae of Marysville said she would consider putting rebate money toward her medical expenses, deferred car and home maintenance and maybe her next tax bill. Jack McClurg of Marysville mentioned his next property tax bill, too, as a candidate for his rebate check.

Others worry about the future cost of a tax rebate now.

“I believe a country that cannot manage the money it already has, should not try to jump-start the economy by issuing money that they do not have,” said Margaret Ford of Lynnwood.

While rebate checks could be invested or held back by taxpayers, adding money to the food stamp program could immediately boost the economy because they can’t be saved or invested, said Glynnis Ashley, an administrator for assistance programs in Washington State’s Department Social and Health Services.

“You have to buy food with it,” she said. “It goes directly into the economy, and the theory is that it will stimulate economic growth.”

In Snohomish County, 21,206 families — that’s about 40,000 people — received food stamps in the 2006-07 fiscal year. Statewide, the number of food stamp recipients has risen more than 10 percent over the past four years, Ashley said.

Reporter Krista J. Kapralos contributed to this story.

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