from The American Prospect:
Don't Spend Your Tax Rebate!
Yes, we're all looking forward to the $600 check that should be coming our way now that we've filed our taxes. But here's a thought -- maybe we should stick it in savings. Reid Cramer | April 15, 2008 | web only
The IRS was so confident in the legendary observation of Oliver Wendell Holmes, Jr. that “taxes are the price we pay for a civilized society” they chiseled it above the entrance to their Washington D.C. headquarters. Still each year Tax Day makes incumbent politicians uneasy—especially at times when recession fears mount and fall elections loom. This year this perilous combination spurred them on to take prompt and bipartisan action. Who wants to be accused of sending families their tax bill as economic growth slows and hardship spreads?
The bipartisan prescription to jumpstart the economy was to deliver over $100 billion in rebate checks back into household coffers. Once again, in times of potential peril, our leaders appear to be issuing a deafening call for Americans to continue their consumption habits and carry on as usual. The message is so loud that one would be forgiven for thinking that failing to spend these rebate checks would be downright unpatriotic. Contrary to lawmaker assumptions, many Americans recognize a greater need to reduce personal debt and increase savings. A recent Pew Research Center poll found that 47 percent of those interviewed intended to use the rebate to pay down their debt and another 23 percent say they are planning to save the money. This would not be the first time that the reality of the kitchen table will confound the fantasies of Washington.
Although few doubt the need for an economic kick start, our policy makers need to find more ways to helping working families save for their future and ensure their long-term financial stability. As it is now, we do a terrible job of facilitating the savings process for these families. The majority of our savings incentives and institutional support systems flow to higher income earners who benefit when their employers automatically deduct savings from payroll, transfer sums into 401(k) savings plans, and provide additional matching deposits. The government then kicks in generous tax deductions which are only valuable to households looking to offset tax liabilities. All told, over $110 billion in tax breaks are provided each year to boost retirement savings. Unfortunately, well over 90 percent of these benefits flow to earners on the upper half of the income distribution curve. Our current approach leaves out exactly the families we should be crafting policies to support.
Yet as the Pew survey findings suggest, the problem for many of these families is not that they are hopelessly addicted to spending and unwilling to save, it's that saving has never been incentivized or encouraged. While the federal government can provide relief to those families unexpectedly stressed by recessionary forces, public policy should do a better job of meeting families' financial needs over the long-term by enabling them to save. A recent proposal by Senator Robert Menendez of New Jersey offers an innovative approach that deserves some attention. He wants to offer targeted households a Saver's Bonus if they commit to savings when they file their tax returns. .....(more)
The complete piece is at:
http://www.prospect.org/cs/articles?article=dont_spend_your_tax_rebate