In hopes of jump-starting the struggling economy, the federal government began sending out tax rebates last week. Retailers are hoping to lure shoppers with special deals, but economists and taxpayers have questioned how effective the plan will be in staving off a recession.

In February, President Bush signed the $168 billion economic stimulus plan into law. Under the plan, individual taxpayers earning less than $75,000 a year will receive $600, and married couples filing joint tax returns will receive $1,200 if they make less than $150,000 a year combined.

There also is a $300 credit for each child. Individuals who did not have to pay 2007 taxes but earned at least $3,000 will receive $300.

Rosa Lea Danielson, an economics professor at College of DuPage in Glen Ellyn, said the success of the plan will depend on what taxpayers decide to do when they get their money.

“It’s only going to work if they spend it on U.S.-made goods,” Danielson said. “If you use it to pay off your credit card bill, it will help your personal finances, but it won’t help the economy. ... Because of the economic conditions we’ve been in, a lot of people will use it to pay off debt or put it in savings.”

If people spend the money on goods that are produced in the United States, it will have a “multiplier effect” in the economy, because businesses in turn will start spending more money, Danielson said. Spending the money on foreign-made goods would limit the impact on the U.S. economy, she said.

If people save more of the money than they spend, the plan will increase the national debt without providing any benefit to the economy, she said.

A number of businesses are offering special promotions to entice shoppers into spending their rebate money at the stores.

Jewel-Osco is offering a 10 percent bonus for individuals who use their entire stimulus check to buy gift cards from May 1 to July 31. For example, shoppers who buy a $600 gift card will receive an additional $60.

Safeway Inc., the parent company of Dominick’s Finer Foods, is allowing shoppers to cash their stimulus checks for free from May 14 to July 19 and is giving Club Card shoppers a 10 percent discount coupon for their purchases that day or the following day.

Wal-Mart also will cash the rebate checks for free and is cutting prices on staple items like shampoo and groceries. Sam’s Club stores will cash the checks for free for members.

RadioShack, Sears and other retailers also are offering incentives for shoppers to spend the money.

Monica Lacey is an independent financial adviser with Raymond James Financial Services in Oak Brook. She said her advice on how to use the rebate money would depend on an individual’s financial situation.

While the government would prefer that everyone run out and spend their entire checks on TVs and other durable goods, individuals should consider their own finances before doing so, Lacey said.

“If a person has a lot of debt, they might be better off using it to pay down debt,” Lacey said. “Anytime you can reduce a high-interest loan, you should do that first. People who don’t have debt, go out and spend it and have fun with it.”

Area residents have a mixed reaction to the stimulus plan. Some plan to use their rebate to pay bills or add to their savings, while some plan to take trips or make major purchases.

Jean Proudfoot of Glen Ellyn said she will “probably just use it to pay bills or put it in the savings account.” High gas and food prices probably will lead a lot of people to spend the money cautiously, she said.

Erin VanDeWalle of Elmhurst said she plans to use her rebate to take a trip.
“I have it earmarked for a vacation,” VanDeWalle said, adding that she hasn’t decided where she wants to go.

Others questioned whether the stimulus plan will do enough to help the struggling economy.

“The 600 bucks is not enough,” said Pam Uslander of Bensenville, who runs the Hot Dog Lady hot dog stand in downtown Elmhurst.

Elmhurst resident Ernie DiSilvestro, who was at the hot dog stand MondayMay 5, agreed.

“If you want to stimulate the economy, pull out of Iraq and put all that money into Social Security for a year,” he said.

Danielson said it will take some time for the rebate money to work its way into the economy, making it somewhat difficult to measure its effect.

Because the tax rebates are essentially a temporary tax cut, it’s hard to say how effective the plan will be, she said.

“People respond differently to a temporary tax cut than to a permanent (one),” Danielson said. “Usually, when you have a temporary tax cut, it tends to not be as effective.”