Taxpayers likely to spend rebates on necessities

  • By Anne D’innocenzio Associated Press
  • Monday, April 28, 2008 10:07am
  • Business

NEW YORK — The tax rebates starting to show up in Americans’ bank accounts will likely be used for food and other basic necessities, making them less of an economic stimulus than the Bush administration hoped for.

Lower-income shoppers, squeezed by higher gasoline and food prices, are expected to use the money to play catch-up on basic purchases like beef and paper products. Another big chunk is expected to be used to pay down debt.

“Consumers are so feeling the pinch that … they are really being forced to step away from luxury or discretionary purchases,” said Janet Hoffman, managing partner of the North American retail division of Accenture. In addition to grocery chains, other major beneficiaries should be discounters like Wal-Mart Stores Inc. and clothing outlets like T.J. Maxx, she said.

Department stores and consumer electronics stores are unlikely to see a “measurable lift,” Hoffman added. “The amounts are not that significant.”

The government’s paper checks will start going out on May 9, a week earlier than previously announced. The rebates, which are expected to reach 130 million households, range up to $600 for an individual and $1,200 for a couple. Families with children will get $300 per child.

Shoppers intend to immediately spend about 25 percent to 30 percent of the $107 billion earmarked for the stimulus checks, according to a recent survey of 2,500 consumers released by Goldman Sachs. But about 55 percent to 60 percent of the money will be used to pay down debt.

Of those shoppers who plan to spend the checks, about 36 percent of the respondents said they aim to use their rebates toward staple items at places like grocery stores and discounters. About 32 percent said they would earmark it for such “necessary” purchases as electronics, home improvement and clothing; the remainder plan to spend it on trips, dining out and other discretionary items, according to the report.

With consumer spending screeching to a halt in recent months, the retail industry need shoppers to splurge, and many chains have launched specific programs to grab a share of the billions of dollars flowing to consumer households. Both Kroger Co. and department store operator Sears Holdings Corp. are offering discounts and freebies to shoppers who convert rebate checks into gift cards.

Grocery store chain Supervalu Inc. said last week that customers can redeem checks for store gift cards in $300 increments, and stores will add an extra $30 to the card.

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