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To Spend Or Not Spend: Will Tax Deal Spur Economy?

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To Spend Or Not Spend: Will Tax Deal Spur Economy?

Economy

To Spend Or Not Spend: Will Tax Deal Spur Economy?

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RENEE MONTAGNE, host:

This is MORNING EDITION, from NPR News. Good morning. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep.

President Obama's tax compromise with Republicans includes a payroll tax cut that would give millions of working Americans at least a little extra money in their paychecks next year.

NPR's Tamara Keith reports on what people say they'll do with the money.

TAMARA KEITH: The goal here is stimulating the economy. For someone earning $50,000, the payroll tax cut works out to $1,000 of additional take-home pay, spread out over a year. So we asked NPR's Facebook fans what they're planning to do with the extra cash. More than a thousand people responded. But very few of them sounded like Kenneth Reitz.

Mr. KENNETH REITZ: If I'm getting $50 extra per paycheck and I know this, then it would be a good excuse to go out and spend $50 for no reason.

KEITH: Reitz is a 22-year-old software engineer. His spending plans involve iPhone apps, Kindle books, and maybe even a new Apple device of some kind. Oh, and maybe a night out with his fiance.

Mr. REITZ: I'll probably say, hey, Bessie, let's go and let's go get some drinks, or let's go eat at a fancy restaurant - or let's eat at a restaurant, because we get 50 free dollars.

(Soundbite of laughter)

KEITH: When it came to the comments, Reitz was the exception rather than the rule. Most people were like Vanessa Willis.

Ms. VANESSA WILLIS: We're not stimulating anything, absolutely not.

KEITH: She and her husband expect to get about $1,000 out of the deal.

Ms. WILLIS: It will go to Mr. Visa, primarily. He will get two-thirds of that as we try to pay down our credit card debt. And about a third of it will go toward the increase in my health insurance costs.

KEITH: No fun stuff at all?

Ms. WILLIS: No, no trip to Disney, no improvements on the house. Just sort of routine things that we need to do.

KEITH: In 2011, her health insurance bill is set to rise by $30 a month. Rising health costs were a common theme in the Facebook comments. Willis says paying off credit card debt became her family's number one priority when her card company doubled the interest rate.

Ms. WILLIS: This money that we'll get from the tax cut will definitely go toward helping us dig out of the hole.

KEITH: Andrea Weber is digging, too. Her husband lost his job in 2009 and was out of work for 10 months.

Ms. ANDREA WEBER: It really rocked our world.

KEITH: They're both working now, and would even be considered upper-middle class. But their money diet continues.

Ms. WEBER: We became coupon people, because it was like coupons are like finding lost money on the ground, you know. It doesn't take that much effort. So this is like my government coupon, you know.

(Soundbite of laughter)

KEITH: She says every penny of it is going to pay off debt.

Like Weber, a huge number of the people commenting said they were planning to pay bills. And that's not exactly the most direct way to stimulate the economy, says Robert Brusca of Fact and Opinion Economics.

Mr. ROBERT BRUSCA (Fact and Opinion Economics): Paying bills is not stimulative immediately. But it might have a bigger stimulative effect down the road. Once people have gotten their bills in order, then they can spend again.

KEITH: That said, Brusca is not convinced that what people say in Facebook comments is what they will end up doing. Len Burman is a professor of public affairs at Syracuse, and we asked him to look for economic clues in the comments.

Professor LEN BURMAN (Public Affairs, Syracuse): What your Facebook fans are showing you is the exact trade off that we see in the data, that some people save it and some people spend it.

KEITH: NPR's Facebook query is clearly not a scientific sample. But Burman says it seems like a lot of people are cautious about spending. And then there are people like Rob Atkinson. He's 25 years old and lives in Moscow, Idaho. He works at a local grocery store and makes less than $20,000 a year. As a result of the tax compromise, he and other low-income earners could actually see their take home pay reduced a bit. Atkinson isn't sure he'll notice.

Mr. ROB ATKINSON (Grocery Store Employee): My paycheck changes from pay period to pay period because I work by the hour.

KEITH: And he's only expecting to lose about $4 a pay period.

Mr. ATKINSON: I'm a little bit disappointed, maybe a little frustrated, I guess, but I don't know. I guess I'm just sort of a little indifferent.

KEITH: He didn't have any big spending plans, anyway.

Tamara Keith, NPR News, Washington.�

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