The Kindest Cut: O'Neill
"We may not be able to do better than that, but I am not satisfied that we can't yet," O'Neill said. Treasury spokeswoman Michele Davis elaborated: First you'll get a letter telling you whether you qualify for a refund check, how much you'll get back and when the check will be mailed. Checks will start going out at the end of July at a rate of 11 million checks a week. Likely amount: about $300 per taxpayer.
Economists everywhere want to know: What are you going to do with yours?
Yes, we know — the only person who can turn the ailing U.S. economy around is Alan Greenspan, and fiscal policy, meaning tax cuts, weren't supposed to be able to help. But the $1.35 trillion tax cut Congress finally passed over the holiday weekend (if you missed it, that's OK; George W. Bush, fully aware no one was watching, will wait until June 5 for the ceremonious bill-signing) included not only the late-blooming marginal rate cuts and estate-tax repeal that Bush has been after since Steve Forbes was a candidate for president, but something neither Republicans nor Democrats had thought much about until April: an instant refund.
So now instead of Americans getting their first taste of the tax cut sometime in spring 2002, when these doldrums will already be fading, 95 million taxpayers — otherwise known as consumers — could be cashing a decent-sized government check before Labor Day. Which could have a measurable effect on a shopping-addicted economy that is right now either just barely dodging a recession or just barely dipping into one, depending on who you ask — and could use something to tide it over to the time when Greenspan's five rate cuts (and counting) kick in in earnest.
Economically, recession/no recession is not a particularly big distinction — just a few tenths of a percentage point of GDP growth one way or the other. A recession is commonly defined as two straight quarters of negative growth; most economists put GDP growth in this quarter (Q2) just on the south side of zero. Whether or not this slowdown gets stamped "recession" may depend on whether GDP growth in Q3, spanning July, August and September, can escape negative territory and notch 0.1 or 0.2 percent to the upside. (The real recovery, by the way, is commonly slated to get underway some time in late 2001 or early 2002. Depending who you ask.)
Politically, it's a much more pressing question. The big R makes for some nasty headlines, and having trumpeted tax relief all winter and spring as the recession-proofing panacea for everything from credit-card debt and high gas prices to bloated electric bills and unexpected dental emergencies, even Long Term George would definitely prefer that the Clinton boom not grind to a very public halt (however briefly) on his watch. Republicans up for re-election in 2002 will like it even less.
And while economy-watchers wait for the Fed's 250 basis points to seep into the economy — and for shell-shocked and inventory-soaked companies to start spending again — Paul O'Neill and the IRS are lining American pockets at what may be the perfect time.
As long as the money doesn't stay in those pockets for too long.
Consumer spending habits are notoriously hard to predict. But economists say that two factors point to a quick turnover from wallet to mall. One is that times are indeed tough, and Americans will be happy for a few extra bucks to put toward continuing to live in the manner to which they're accustomed. The other is that this is just a down payment. Everybody knows — Bush has made sure of it — that more tax cuts are on the way in a few years, and there's no real reason to hang onto this pleasantly unseasonable bit of green when it's only the beginning.
And then there's the reality of the typical American household these days — we spend more than we earn, and save less than nothing. So whether that $300 or $600 goes into checking, savings, or pays down credit card debt, folks will probably spend that amount (if not more) as soon as it's made them feel a little wealthier.
Two-thirds of the U.S. economy is consumer spending, and as corporate America continues to wipe bubble off their face that share's been even more than usual. Some forecasting outfits are figuring that Paul O'Neill and his $30-odd billion Labor Day mailing could add a full 1 percent to GDP growth in the third and fourth quarters of this year. Which may or may not be enough to prevent the U.S. from tipping the statistical scales into the red.
But it sure won't hurt.