INCOME TAX REBATES: Can we afford it? Do you qualify for it? Will you spend it or save it? By Christina Mae Olson, CFP®

Our federal government has done it! They have passed (and our president has signed) a bill that orders hefty income tax rebates to go out to over 130 million Americans! Implementing this “stimulus package” will cost us $$ millions – over and above the $168 billion in rebate checks. As I write this article on 2/19/08 at 9:30 am the national debt is $9,299,300,080,294.66. Check out: http://brillig.com/debt_clock/ to see how much it has increased by the time you read this. Our national debt increases by $1.56 billion every day! CAN WE REALLY AFFORD THIS NEW OBLIGATION?

These rebates will amount to $600 per person ($1200 for legally married couples) and an extra $300 for each dependent child. You might not get that much if you earned more than $75,000 in 2007 ($150,000 for couples). By the way, social security income is included in “earned income” so if you collected social security in 2007 then you are eligible for this rebate.

There are very few qualifications:

If you get a refund on your 2007 tax return and you have directed the IRS to auto-deposit your refund then your rebate will also be auto-deposited. The rest of us will have to wait and will get paper rebate checks mailed to us.

These “rebates” are actually a credit against our 2008 income taxes (computed based on our 2007 tax liability). The rebate will not be counted as taxable income on next year’s tax return. If you are a student or a very low income wage earner who usually doesn’t have to file a tax return – file one now so you can get your rebate. Gee whiz, the standard deduction for single workers was $5,350 in 2007 and the personal exemption was $3,400 so if you made less than $8,750 then you probably weren’t going to even file a return. Don’t blow off a chance to get this money – file a return! No tax return – no rebate!

What will you do with the money? The government wants you to spend it on consumption. They think that having an infusion of $168 billion changing hands at restaurants, department stores, car lots and other retailers will boost us out of this economic “recession” we are in.

I think this “stimulus package” is foolish. We are in this recession right now because we couldn’t handle debt. As a country and as individuals – we cannot handle debt! Foreclosures and bankruptcies continue to climb. We buy on credit and spend money that we don’t have – and can’t pay back. The average household debt in America is $8400 (excluding mortgages and auto loans)! The average national savings rate is < -.5 > – that is minus one half of one percent! That means we are spending more than we are earning (not saving anything) and we are going deeper into debt each month just trying to get by. Why give us money and tell us to spend it when we can’t live within our means in the first place?

Here is what this financial planner suggests you do with your rebate checks:

After you have taken these four prudent steps then you will have my blessing for injecting what is left into our economy. You’ll be helping to get our nation out of it’s nearly $10 trillion debt! Way to go, people! Thank you!

Chris Olson is a licensed Certified Financial Planner™ Practitioner in private practice. You can contact her at CMOney@centurytel.net or 608-525-9818.