Spending the Tax Rebate

Tax-rebate checks of $100 to $200 each are now on their way to or already in the hands of nearly 40 million people (out of a total of 70 million who will eventually receive them), making more urgent the biggest economic question of the moment: What will consumers do with the bulk of the money? Use it to repay old bills? Tuck it away in savings accounts? Or spend it promptly in ways that could help the economy recover from its worst slump since the 1930s? Last week a survey by TIME correspondents clearly indicated that most of the early dollars are indeed being spent quickly. This finding strengthens hopes that an upsurge in consumer buying, fueled by $8.1 billion of rebate money being paid out in May and June, will lead to an early launching of the long-awaited recovery from recession.

Many consumers are using the money to finance purchases of essential goods and services that they could have ill afforded otherwise. Helen Wood, a saleswoman for an Atlanta office-supply firm, spent her $139 check on children's bathing suits and some clothes for herself. A Pittsburgh mother of five says that she cashed her check and used it for food and household supplies--without telling her husband. Detroit Secretary Virginia Donohue is paying for dental work with her rebate. "It's a godsend," she exclaims.

More Willing. Other consumers, less impressed by the size of their rebates, are treating them as found money to be spent on trips, gifts and a variety of luxuries. Chicago Travel Agent Jill Jahnke, 29, is using her $100 check to help pay for a trip to Nassau. "I guess I'll still be eating chicken and tuna fish when I get back," she quips.

A large number of consumers say that they are more willing to spend their rebate money now than they would have been earlier this year because they have less fear of hard times. Last week the Government reported that manufacturers' orders for durable goods jumped 9.8% in April, the biggest hike since 1967. Consumer prices in April rose at an annual rate of 7.4%, about double the abnormally low March pace, but the increase was still less than in any month during 1974. Consumers may not follow the detailed figures, but they have heard the forecasts of upturn, and some are acting on them.

"If I'd received this check three months ago, I'd probably have banked it," says Chicago Widow Eulaee Birchmeir. Instead she will use her $171.50 rebate to buy opera and symphony tickets and pay off a credit-card bill.

Predictably, consumers are less enthusiastic in areas where unemployment has climbed well above the national average of 8.9%. In hard-pressed Maine, surveys by the Bangor Daily News and Brunswick Times-Record show that many rebates are being saved or used to pay off debts. In Buffalo, where the jobless rate has reached 14.5%, a large savings bank reports that 150 to 200 rebate checks are being deposited each day. Such activity does not necessarily hurt the economy. Checks that are saved and used to buy consumer goods later will help spread the economic stimulus over a longer period of time; those that are banked indefinitely increase the supply of credit available to loan-seeking consumers and businessmen.

Still, the economy would unquestionably get a much bigger shot if consumers spent all the rebate checks immediately, and a few manufacturers have launched special promotions to encourage them to do just that. Chrysler advertises CONGRESS ACTS TO GIVE YOU A TAX REBATE . . . CHRYSLER ACTS TO MAKE IT GO FARTHER. The company is mailing $200 rebate checks of its own to buyers of Darts and Valiants. Some retailers, too, are bidding for the rebate buck. Chicago's Goldblatt Bros., a department store chain, last week promised shoppers a 10% discount "on most items" if they bring in their rebate checks.

The effectiveness of some of these campaigns remains to be seen. Though many consumers seem ready to spend, they are not yet going for big-ticket appliances like color TV sets, and even less for new cars. Echoing the view of many in the depressed auto industry, Bangor Dodge Dealer Phillip McFarland says that the rebates have done nothing for his business. "I just don't think it's that important to an individual when he's buying a car," he adds.

Second Push. Economists are betting that revived consumer spending for a broad variety of goods can get an upturn going without an immediate lift from the auto industry. The new question to which some are turning: What will those retailers and manufacturers who do benefit from rebate spending do with the money? If they in turn step up their outlays to order more goods and increase production, the economy will get a second upward push from the rebates during the last half of this year.

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