Drop in the bucket – tax rebates go to gas, food and bills

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

The government’s tax rebates, aimed at reinvigorating consumer spending to jump-start the sluggish economy are headed straight to the tank, credit card companies and dinner table instead. While politicians hoped that consumers would head to the malls to hep the sluggish economy the rebates are being quickly consumed by rising debt and ballooning energy and food prices.

Not that this was difficult to see coming. The crush of mortgage resets, frozen equity lines of credit, declining home prices and maxed out credit cards are only exacerbated by the inflationary pressures seen on everyday necessities for life and work – gas and food. Combine the lack of credit and a decline in spending power and you get a recipe for personal economic disaster.

From the New York Times on the rebate’s failed promise:

Between late April and the end of last week, the Treasury handed out more than $50 billion of the $100 billion in tax rebates it plans to distribute to 132 million households. But only once in the last six weeks have chain stores registered an increase in sales, according to the International Council of Shopping Centers, whose weekly sales survey is a widely watched barometer.

?The initial sense is that people are not running out to the malls to spend their checks,? said Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. ?It?s not quite proving to be a hot potato that?s burning a hole in people?s pockets.?

Here in Miami, where the economy remains stuck in the orbit of plummeting real estate prices, Guillermo Gonzalez is one of those using their tax rebates to dig out of debt.

A wine salesman who makes about $60,000 a year, Mr. Gonzalez received $1,033 via direct deposit. He understood the implicit invitation to spend it on a new gadget or a family vacation, but he was behind on his house payments, he said. As gasoline costs have doubled in recent months, and as grocery prices have spiraled higher, he has been struggling to pay the bills. With a click of the mouse, he sent the whole rebate to the mortgage company.

?They think they give you a check to go out and spend some money, but it?s not enough,? said Mr. Gonzalez. ?The dollar doesn?t buy anything anymore. The way the economy is going, people are too scared to spend.?