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Parent debate

• Debate:Bush Economic Stimulus Plan

Supporting evidence

• Congressional Budget Office. "Options for Responding to Short-Term Economic Weakness". January 2008 - "Most analysts agree that the 2001 rebate stimulated the economy, although there is some debate about the magnitude of the effect. Consumption did jump sharply in the following quarter (see Figure 2); however, because longer-lasting tax cuts were announced at the same time, it takes careful research to tease out the effect of the rebate. One widely cited study relied on quarterly data from the Consumer Expenditure Survey to provide estimates of the average propensity to consume the 2001 tax rebate.15 The study’s authors estimated that households spent between 20 percent and 40 percent of their rebate amount in the quarter in which the rebate was received and about two-thirds of the rebate cumulatively by the end of the subsequent quarter. According to the study,

the rebate increased total consumption by about 0.8 percent in the quarter that the rebates were received and by about 0.6 percent in the subsequent quarter. The authors also found strong evidence that households that were young, had low income, or held few liquid assets consumed a substantially larger fraction of the rebate than did households that were older, had high income, or had large holdings of liquid assets."

Researchers using credit card data to examine the effects of the 2001 rebate on consumption found a similar impact.16 Households’ credit card debt immediately dropped upon receipt of the 2001 rebate. However, subsequent credit card spending rose. The researchers have access to data on the primary credit card for only a subset of cardholders, but among those households, spending increased by $200, or about 40 percent of the rebate on average. The study also found that consumption rose the most for consumers who were likely to be credit constrained. By contrast, unconstrained consumers responded to the rebate by paying down their debt (which increases saving).

By contrast, another study based on a survey of households found that only about 22 percent of them felt that the rebate would lead them to "mostly increase spending," as opposed to mostly saving it or paying down debt.17 However, because that study did not include quantitative estimates of the impact on consumption, it is difficult to compare it with the two studies mentioned above. On balance, it appears that the 2001 rebate may have had a greater effect on the economy than earlier, purely temporary rebates or surcharges."

• Treasury Secretary Hank Paulson defended the 2008 tax rebate stimulus plan on the basis that the 2001 tax rebates were successful, which gave $300 per individual and $600 per family in a 2001 - "The evidence was that people spent between a third and two-thirds of the money and spent it quickly,"[1]

• Martin Crutsinger. "Analysis: Tax rebates are seen as way to give economic stimulus package biggest bang for buck". Associated Press. January 18, 2008 - "A study showed that Bush's 2001 stimulus package was a success in this regard, with two-thirds of the tax refund payments getting spent in the first six months. The recession that year was mild. It began in March but was over by November even though the country got hit during that period by the Sept. 11 terrorist attacks."