Posted on 08/20/2003 4:47:07 AM PDT by AntiGuv
SAN FRANCISCO (CBS.MW) - Almost half of Americans who've received tax-rebate checks have used the money to pay off their debt -- not spent it in the mall, according to a recent CBS News/MarketWatch poll.
Thirty percent of those surveyed said they've received their rebate checks and of those, 46 percent said the money went to pay bills. Another 29 percent said they've saved or invested the rebates, while just 18 percent said they spent it.
The results are at odds with the Bush Administration's hope, and possibly that of retailers, for the tax rebate: that Americans would spend the money to help stimulate economic recovery.
The statistics are similar to the results of another poll conducted two years ago, during the first round of tax cuts. In 2001, 43 percent of tax rebate recipients said they used their check to pay bills, 32 percent saved or invested the money and just 15 percent spent it.
Two consumer credit reports released last week dovetail with the poll's findings.
The Cambridge Consumer Credit Index, a monthly survey on credit card use, fell to a reading of 55 in August from 60 in July, indicating that consumers are less willing to take on new debt.
And a report from the Federal Reserve showed a rare decline in consumer credit for the month of June. Total consumer credit, excluding mortgage-backed debt, fell $400 million in June to $1.761 trillion, the Fed said. See full story.
As for the people surveyed in the CBS poll, about 55 percent said they had not yet received their rebate check, and about 13 percent of the respondents said they did not expect to receive one.
Those who did receive it were no more likely than those who didn't to say the recent tax cuts would help create jobs.
But the tendency to pay bills rose as household incomes fell. Of those Americans with annual household incomes totaling less than $50,000, 55 percent said they used their tax rebate to pay bills. By comparison, in households bringing in $50,000 or more, just 34 percent used the funds to pay bills. More of those in the higher-income households reported they either saved the money or invested it.
CBS News conducted the poll among a random sampling of 798 adults across the nation interviewed over the telephone on August 11 and 12. The margin of error is estimated at plus or minus four percentage points.
The money loaned is 'spent' when the escrow company transfers the money to the builder. The home is a good, sold (under a contract of sale typically) from the seller/builder to the buyer - a one-time event albeit drawn out over several weeks. Upon completion of the contract of sale, the builder/seller and buyer have no further obligation to each other (save warranty stuff). The buyer has an ongoing obligation to make payments on his loan to the bank.
Think about this:
Someone borrows money from a bank at say 1% interest. But they buy neither good nor service. They put the money in their mattress. Money is multiplied because it was loaned, but velocity (for those particular bills) stops.
or...
Person A borrows money from a bank at say 1% interest. But they turnaround and loan that money to a home buyer (Person B) at 6% interest - Person A pocketing as profit the 5% difference. Person A borrowed money, multiplied by the loan from the bank, but spent nothing and added no velocity. However, Person B borrowed money, multiplied nothing (because Person A is not a fractional reserve bank) but increased velocity when Person B spent the money on a home (bought in a one-time exchange cash-for-good transaction with the builder).
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