Opinion: Would $40 more per month change your spending habits?

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The incoming administration’s economic stimulus plan borrows a number of its tax provisions from the 2008 stimulus package, including the idea of giving taxpayers a rebate. Last year’s rebate was $600 per individual and $1,200 per couple filing jointly, plus $300 per minor child, and it was phased out for higher-income taxpayers. This time, President-elect Barack Obama has proposed a refundable credit of $500 per individual or $1,000 per couple, which would be available to taxpayers making less than $150,000.

The previous version of the rebate helped drive a surge in consumer spending. According to the Bureau of Economic Analysis, spending on non-durable goods jumped 3.9% in the second quarter of 2008 after having fallen slightly in the first quarter (and before plummeting in the third). Yet numerous economists have argued that it wasn’t an efficient approach because much of the rebate money went into savings or to pay down debt. People knew it was a one-time benefit, and they acted accordingly.

The current proposal, on the other hand, is being billed as a down payment on a permanent change in tax law. And instead of sending out checks with the full $500 or $1,000, Obama’s team wants to lower tax withholding rates so the rebate trickles out in workers’ paychecks. If you get paid every other week, you’d see about $20 more in every check if you’re single, $40 if you’re married. Some analysts say this approach would be more effective than a one-time boost. The question, though, is whether the amount is large enough to make a difference. What do you think?

AP Photo/Paul Sakuma, file