The latest news on the economy is bad. Apparently, the housing debacle, years of negative savings rates, and a credit crunch thanks to our insatiable appetite for something bigger and better was too much for the bull market. This economic “perfect storm” has effectively wiped out gains earned since March 2007, and has driven the U.S. economy into a recession. Government officials are preparing to infuse the economy with various forms of economic incentives.
Will history repeat itself? After September 11th, and the Bush tax cuts, taxpayers were treated to a mid-summer tax rebate check as a prepayment for the tax decrease implemented by new tax laws. Some are predicting a similar tax rebate check as part of this economic stimulus package. Economists hope this infusion of cash in consumers’ pockets will lead to increased spending that will pull us out of a recession.
Put your tax rebate check to good use by paying down debts. Don’t worry, there will be enough consumers out there spending their rebate checks on frivolous needs. I don’t consider it unpatriotic to use your tax rebate for paying down your debts. In 2001, tax rebates for married, joint income tax filers was $600. Sure, that money could buy a new Xbox 360, or a new recliner for your living room, but knocking out some high-interest credit card debt has more long-term payoff for your personal financial situation. If you are already debt free, consider starting an emergency fund, or investing in a few shares of a discounted stock for your children. How will I know if I’m getting a tax rebate check? While the details haven’t yet been announced, the 2001 tax rebate checks were sent to people who filed taxes in the year 2000, and claimed a minimum amount of earned income ($6,000). In 2001 the checks represented an advanced refund on your 2001 taxes thanks to reduced tax rates. With no additional tax cuts on the immediate horizon it will be interesting to see how this solution can be financed. When and if it is, be prepared to put the money to work for you and resist the temptation to spend it all.