Note to Editors: Vickie Bajtelsmit is a professor of finance in the Colorado State University College of Business and the author of three personal finance books.
This past week, President Bush signed into law an economic stimulus package that includes federal income tax rebates for about 130 million households. If everyone spends their rebate checks, it will pump billions of dollars into our floundering economy.
The problem with that plan is that spending the rebate is not the best use of funds for most households. Unless your family is struggling just to put food on the table, it would be much better for you to take those dollars and pay back high interest credit card debt or invest it in your retirement plan. But if everyone did the smart thing, the program would not be successful in stimulating the US economy. Hmmm-that sounds like a serious "Catch 22."
So I have a suggestion. Why don’t we just tell everyone else to go spend their checks, while we quietly use ours to work toward one or more of our long-term financial goals?
Is this enough money to make a difference? I think so. A family of four will receive a check for as much as $1,800. That’s enough to make a dent in the credit card balance, contribute to your child’s college fund, or fund part of your 2008 IRA contribution.
How big will your check be? If you’re single and had adjusted gross income of less than $75,000 for 2007, your rebate will be $600. Married taxpayers with income less than $150,000 will receive $1,200. The rebate is phased out for higher income levels at a rate of $50 per $1,000 over the income limit, which means that single taxpayers who make $87,000 (married $174,000) will not receive any rebate.
Parents of children under the age of 17 will get another $300 per child, with no limit on the number of children. So an eligible couple with six kids will get $4,000 in total ($1,200 for the parents and $1,800 for the children). For any college students reading this column, I’m sorry to have to tell you some bad news: you won’t get a rebate check if you’re being claimed as a dependent by your parents. Unfortunately, your parents won’t get the $300 either, since you’re too old to qualify for the child rebate.
If you had no income in 2007, you aren’t eligible for the rebate. But even if you owed no taxes for 2007, you can get $300 ($600 per couple) if you had at least $3,000 in income for the year, as long as you file a tax return for 2007. And if your income changes such that you are eligible for a better rebate based on 2008 income, you can get the rest of the rebate when you file your taxes next year.
The Treasury says it will start sending out the checks in May, so most people will have the money in hand between May and July. The penalty for procrastination this year: if you file after the normal April 15 deadline, your rebate will be delayed.
For the health of the economy, it would be best if all of you went out and spent your rebate check on consumer goods and services. Better yet, spend your rebate check before you even receive it. Take a vacation, buy new clothes, a new living room set. As for myself, I’m going to look out for number one and put mine into savings.