Study: Tax Rebates Could Go to Gas

Consumers are planning to spend much of their tax rebate checks on necessities like gas and food, leaving less money to stimulate the economy with purchases on discretionary items, industry research from the National Retail Federation and BIGresearch revealed.

Consumers said they plan to spend 40% of their tax rebate checks, which will send $42 billion back into the economy. Because of increases in gas and food prices, however, consumers plan to spend more of their rebate checks on those items than on items like electronics and apparel, the study showed.

The largest leap in rebate spending will take place at the pump, where 17.2 million people plan to use some of their tax rebate check to pay for gas, up from 12.1 million people who planned to do so in February.

The rising cost of everyday items like milk, bread and rice means more consumers plan to spend tax rebate money on groceries. About 21.2 million people will use a portion of the check for food, up from 20.4 million people in February.

Fewer people plan to use rebate checks on furniture (2.7 million compared to 4 million in February), purchase a vehicle (2.4 million compared to 3.2 million in February) or use it for “me” time at a salon or spa (2.9 million compared to 3.5 million in February), the study showed.

“The rising cost of groceries and gasoline means that discretionary spending is taking a backseat to necessities,” said Tracy Mullin, NRF president and CEO. “For many consumers, struggling with rising bills and lowering home values, economic stimulus checks could not come at a better time.”

The survey reinforced February estimates on how consumers would spend the $105.7 billion being distributed in tax rebate checks. According to the findings, consumers as a whole plan to spend 39.9% of their tax rebate checks, providing a $42.2 billion boost to the economy.

Consumers will also use the money to pay debts ($28.1 billion), save ($20.1 billion), invest ($3.4 billion) and pay medical bills ($4.9 billion). Consumers said they’ll also use $6.9 billion in “other” ways.

President Bush’s rebate and economic stimulus package passed this year is a $152 billion measure that provides tax rebate checks of up to $600 per working individual and $1,200 per married couple, plus $300 per child for families with children.

“Many retailers have already announced creative promotions to give consumers an extra incentive to shop with them,” said Phil Rist, Vice President of Strategy for BIGresearch. “Some retailers are helping customers stretch the value of their rebate check further by tacking on an additional 10% to gift cards purchased or holding special in-store promotions.”

The NRF survey showed that women are more likely to spend or save portions of their rebate check, while men are more likely to pay debts. Almost 44% of consumers ages 18 to 24 – a critical consumer demographic for convenience stores – will spend more of their checks.

The NRF tax rebate survey polled 8,347 consumers from April 29 to May 7. The question asked, “The sending of the economic-stimulus rebate checks/ payments began Monday, April 28th. What are you planning on doing with the money?” The poll has a margin of error plus or minus 1%.

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