Rebate checks won't get spent

It's a recession - top economist

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NEW YORK (CNNMoney.com) -- Tax rebates are the centerpiece of the government's plan to stimulate the economy, but many Americans are planning to put the money in the bank or use it to pay off debt, according to a survey released Monday.

A CNN/Opinion Research Corp. poll found that 41% of respondents plan to use their rebates to pay off bills, and 32% will put the money in savings. Just 21% of those polled intend to spend the money, while 3% said they will donate the extra money to charity.

The rebate checks are part of a $170 billion economic stimulus package passed by Congress last month that also includes tax rebates for small businesses, as well as payments to disabled veterans and some senior citizens.

The package will pay $600 to most individual taxpayers who earn less than $75,000, and $1,200 for married taxpayers filing joint returns who together earn less than $150,000. There is also a $300-per-child tax credit.

Overall, the rebates will put $120 billion in the hands of individuals, with the aim to get them spending in order to boost the faltering U.S. economy.

Jared Bernstein, an Economic Policy Institute senior economist, notes that taxpayers have in the past spent half to two-thirds of their rebate checks. However, he points out that the current economic conditions are unique.

"We've never done this in a period when American households are so deeply indebted," he said. "While [saving the rebate] is a valiant thing to do, what you want them to do is spend it."

Mark Zandi, chief economist at Moodys.com, thinks it is important to distinguish between what people say they plan to do, and what they actually end up doing.

Zandi thinks taxpayers will end up spending two-thirds of their rebate checks, which he estimates could add up to $70 billion flowing into the economy.

"I think that matters," he said. "If it's spent between May and Christmas it will add at least a percentage point to GDP by the end of the year."

Separately, the CNN/Opinion Research poll also found that 54% of respondents are in favor of making permanent the federal income tax cuts passed into law since George W. Bush became president.

The so-called Bush tax cuts, which are set to expire within the next few years, have become a contentious political issue. Some Democratic lawmakers have argued that the cuts favor higher-income taxpayers, while some Republican legislators say the cuts are important for economic growth.