How Will You Spend Your $13 Stimulus This Week?

February 18, 2009 by  
Filed under Debt and Credit, Economics

As you might have guessed, this post is about the individual tax credit component of the stimulus plan that President Obama signed yesterday.  It will increase the size of the average weekly paycheck (for those earning less that $75,000 yearly) by $13.

Notice that the title of this post suggests that the $13 take-home pay bump will show up this week.  It won’t.  Estimates are that the tax credit won’t actually hit the payroll and withholding systems until June.   Why is that?

The easy answer is that it just takes that long for the government to do anything.  New withholding tables have to be printed and distributed, etc.   I’m not so sure that’s all of it, given how anxious the Obama team was for prompt passage of the bill.  If the government really wanted to, it could notify all employers – using TV and newspapers if necessary – to immediately reduce tax withholding by $13/week on all employees making less than $75,000, adding that the rest of the details would get sorted out later.  But, I think at least part of this timing relates to how the government wants the money to be spent.  More to the point, I’m thinking that the government may be trying to induce a debt spending multiplier with the the stimulus tax credit, well beyond the $400 total per worker.

You may recall receiving a stimulus payment in 2008.  (I don’t because I didn’t receive one.)  Depending on your circumstances, you or your family received $600, $1200 or even more with dependent children.  It arrived in a lump sum.  That didn’t work out so well for the economy.

A Harris Poll study by the Principal Financial Group found that most recipients used their 2008 stimulus money to pay off debt, to pay regular monthly bills, or saved it.  Those are not uses that trigger a resurgence in an economy that depends so much on consumer spending.

So the government learned its lesson.  This time it wants the money doled out slowly, which is why we are receiving a steady increase in take-home pay and not a lump-sum payment.  But how about that four month delay before people actually see the benefit in their paychecks? 

People know that the money is coming – that’s certain.  Many consumers will spend in anticipation of receiving money.  Think of all of the Christmas bonuses that get spent before they actually arrive.  Or how about all of those income tax refund anticipation loans that are made every tax season?  We are known as a consumer society that has been inclined to spend money we don’t have anyway.  The spending attraction of money you know is coming could be overwhelming.

That’s what I think the government is hoping for – that many consumers will spend now, in anticipation of receiving an increase in take home pay.  Indeed, I think the government is hoping that some consumers will light up those credit cards again, using a “buy now, pay it back this summer” mentality.  And this is where the debt multiplier effect comes in.  If someone is going to make a credit card purchase in anticipation of a soon to arrive monthly increase ($52) in take home pay, will they limit themselves to a $400 purchase?  (This is the total amount of the 2009 tax credit.)  Or will this new spending consider that the tax credit will extend into 2010?  If this is what happens, the economy will experience a spending surge in summer 2009 based on money anticipated to be received well into to 2010.  

On the one hand, that is probably a clever economic strategy by government planners.  But this strategy has a dark side as well.  First, it “stimulates” a return to the credit-driven consumption days that helped get us into this mess.  Second, I think there is a substantial risk – and the government may want this – that consumers won’t actually limit themselves to the total amount of the tax credits for 2009 or even 2010.  All they will think about is that “monthly” payment.  They will figure that if they have an extra $52 per month to spend well into to 2010, they won’t worry about what happens after that.  Maybe they will engage in wishful thinking that the government will do something else for them or that the economy will recover, giving them a raise in another way.  So the spending will multiply beyond the $400 or $800, using available credit.  Not good in my opinion.  Please don’t think like that.

Or I could be completely wrong and consumers will actually wait until June, after which there will be a sudden increase in weekly purchases of lottery tickets, fast food, and alcohol.   Is that any better?

How do you think this stimulus spending will play out?

Feed Mr. ToughMoneyLove

FREE UPDATES: If you enjoyed this, please subscribe to receive the newest hard truth from Mr. ToughMoneyLove automatically by RSS feed (what is RSS?) or by spam-free Email.

  • Banner


10 Responses to “How Will You Spend Your $13 Stimulus This Week?”
  1. $13 a week: That means I can switch to Sam Adams from Miller Light. Sam Adams is American owned so I think I’m doing my part!

    This is better than a direct check to taxpayers, but I don’t think it’s going to make much of a difference.

  2. MasterPo says:

    It’s not a concern for me.

    Both my wife and I make over $75k (not much mind you) so we don’t need a tax break. Infact, a good tac hike would be just what the doc ordered!

    (that’s sarcasm)

  3. kitty says:

    I earn over 100K alone, hence I am not getting anything, so how would I know? I wouldn’t have spent it, but then this money wouldn’t make any difference to me anyway. Personally, I wouldn’t mind people’s spending it in hope it’ll help my stocks.

    I am not sure if the people would actually spend money in anticipation. Psychologically, I can understand spending money if you expect a large lump sum, but I don’t see how expecting extra $13 a week would cause one to buy anything in advance. Just doesn’t make much sense to me. But then, what do I know?

  4. kitty says:

    Sorry, another post. Just saw this: “Or I could be completely wrong and consumers will actually wait until June, after which there will be a sudden increase in weekly purchases of lottery tickets, fast food, and alcohol.” and just couldn’t resist.

    Look on a bright side. Lottery tickets create revenue for a cash-strapped states like NY. Fast food and alcohol are both made in America and hence help American economy. At the time of last stimulus there was a joke that the things one should buy to help the US economy are beer, cigarettes and prostitutes. Everything else would help Chinese economy or that of some other country.

  5. MasterPo says:

    So this is the “middle class tax cut” for 95% of Americans that our Messiah promised during the campaign?

    Why do I feel we just collectively drank the Kool-Aid?


  6. Brion says:

    Actually, it is $12.81 a week. Multiply by 52 weeks, it is almost exactly $666. Coincidence?

  7. Gene's mom says:

    Almost exactly…..I LOVE that phrase!

  8. Atkins says:

    Apparently people who don’t get withheld also don’t get no stimulus. I suppose they get to pay less into the quarterlies.

  9. Shawn says:

    I was always taught as a rule of thumb there are two industries that will never go up in smoke… Medicare, and Hospitality… I’m a bartender at a very high traffic club. We have watched no only tips but bar revenue hit an all time low since december. And it’s actually getting worse week by week.

    I know that it won’t hit rock bottom, because we’re how people forget about their money problems… til either the end of the night with the tab, or the credit card summary.

    P.s. My mama always taught me not to spend money, to save money. 1.9 trillion in a month….. world record….. here we go again. Don’t blame me though, I didn’t vote for him.

  10. vicky says:


Speak Your Mind

Please leave a comment and tell us your version of the hard truth...

You must be logged in to post a comment.