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Comment by jartelt | Hacker News Reader

I think a more likely scenario is people take the $500 and use most of it to pay bills or pay off credit card debt. They then take whatever money is remaining and go out to dinner, buy toys for their kids, etc. The real effect of the tax break on growing the economy is muted quite a bit in this scenario.

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Bills need to get paid. If I'm paying my bills with "free" money, that means I have other money to spend on other things. If I'm paying off credit card debt, it means I have those interest payments available to spend now.

The only way to waste money from the economy's standpoint is to save it. As long as it's being spent, it's being spent well. And as long as it's being spent on something that you pay taxes on, the government wins too.

I am just trying to say that if someone uses the tax break to pay off a portion of debt or to pay for bills and not have to get a payday loan, it doesn't have the same immediate effect as if they go and buy a dishwasher. Yes, they end up paying less interest on their debt over long run, which gives them more money to spend (or save). But these gains are realized in there being less interest in the monthly debt payments, and I think in this case the gains are more likely to be saved rather than pooled to make a large purchase.

How does paying bills and credit card debt mute the effect of the tax break?

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