REBATE DEBATE AS CHILD TAX CREDIT CHECKS ROLL IN, SOUTHERN CALIFORNIANS WEIGH SAVING VS. SPENDING.

Byline: Barbara Correa Staff Writer

Bryant Elder, a construction worker in Pasadena, hasn't received his $800 child tax credit payment from the Internal Revenue Service yet. But the father of two daughters already knows exactly how he'll spend it: buying school clothes.

``The dress code at their school is khaki pants and white shirts, but not just the standard kind - they're more expensive,'' said Elder, who plans to spend the tax credit - and more - on several months worth of uniforms.

That's great news to retailers hoping for a bump in their annual back-to-school business. But credit debt agencies and some recipients of the advance payments question whether now's the time to be touting additional consumer spending as a short-term crutch for the economy.

``I don't understand why they're giving rebates when the economy is so bad - especially in California,'' said Marci Colomey, a mother of three toddlers in Claremont who plans to deposit her tax credit money directly into savings accounts already set up for the children. ``I'm glad to be getting the money, but I don't really understand where it's coming from.''

Under a $350 billion tax relief bill signed into law by President George W. Bush in May, families who claimed a credit for a child under 17 in their 2002 tax returns will get an advance payment of up to $400 per child this month.

The checks, whose amounts depend on income level, were sent out in three batches, beginning July 25, with the last batch going out August 8. About 700,000 checks worth about $420 million will be mailed to residents of Los Angeles County, according to the IRS.

While some parents question the fiscal soundness of the rebates and their explicit use as a short-term economic injection, retailers have jumped in with gusto to cheer on consumer spending rather than saving.

``It's up to everybody to manage their own finances,'' said John Smiley, a spokesman for Home Depot. The home improvement giant has been running TV ads for several weeks to promote its in-store rebate check cashing service.

``We know that some people are going to save it, some are going to use it to pay down debt, and some are going to spend it,'' he said. ``We hope to be the destination for those who are going to spend it. A dollar spent on home improvements can yield two or three dollars in the resell value of your home.''

So far, stores offering to cash the IRS checks aren't seeing the flood of takers they expected.

Carlos Gomez, manager of the Simi Valley Wal-Mart, said he's only cashed one check to date.

``We've been saying, where are they?,'' said Robert Hunter, a layaway clerk at a Wal-Mart in Duarte. ``We thought for sure we'd see them by now, but it's just been about one a week.''

To spend or to save

As far as credit counselors are concerned, that's a good sign.

``Consumers would be doing themselves a big favor by using that money to pay down credit card debt,'' said Lilia Mojica, national outreach director at Springboard, a nonprofit consumer credit counseling agency based in Riverside.

Mojica, a former retail banker, said consumers are more savvy than they once were about credit, but there are more temptations to buy on borrowed money now. And, while lower interest rates have trickled down to rates on mortgage and car loans, credit card rates haven't dropped that much.

``If you're not going to apply it to credit you owe, if you use it for your children's education, that's also a wonderful idea,'' Mojica adds. ``But to just say, Let me go over and buy myself an extra pair shoes and a purse - I have a hard time with that.''

Total outstanding, or unpaid, consumer credit has risen steadily to well over $1.7 trillion this year, from $1.3 trillion in 1998, according to Federal Reserve statistics.

Meanwhile, personal bankruptcies climbed to a new record high, over 400,000, in the first quarter of this year, the American Bankruptcy Institute reports.

The U.S. household-debt service burden, which the Fed uses to track the ratio of debt payments to personal income, has been hovering around 14 percent in the last year and a half. That's high, considering the economy is supposedly in a recovery and interest rates are low, said Christian Weller, an economist at the Economic Policy Institute, a nonpartisan think tank.

``In the future, these numbers are likely to rise because interest rates will go up ... on adjusted rate mortgages somewhat, but more on the revolving (credit) side.''

Still, for the economic big picture, spending is desirable, he said. ``It may be good for the individual household to pay down that debt. But for the economy, if everybody does that it's bad news,'' because the extra money creates jobs. Plus, experience shows that when consumers use such rebates to pay off credit cards, they end up running the cards up again almost immediately, especially low-income consumers having trouble making ends meet (in general, families making under $27,000 don't make enough to qualify for the credit).

``Consumer spending is accomplished by consumers running up debt,'' said Max Sawcky, another economist at the institute. ``Most economists would say (rebates) will help the economy but there are a number of problems.'' He said the amount of the rebates will be too small to make much of a difference overall. In addition, consumer spending won't boost the weakest link in the gross domestic product: investment in business equipment.

On top of those negatives, encouraging spending instead of paying off credit cards could result in higher debt levels and delinquencies, which would make it harder for all consumers to get loans of all kinds. But there isn't a whole lot the government can do about that, said Sawcky.

That's fine with many consumers who have taken money matters into their own hands.

``We're putting (the rebate money) in their savings accounts for college,'' said Eileen Rohus, a forensics psychology student and mother of three in Alta Loma. ``A lot of people from my husband's work say they're just going to spend it.'' But for her, there was never any question of where it would go. ``We definitely want them to go to college,'' she said.

Rosa Gonzalez, a mother of four in Simi Valley, said she's still weighing whether to continue remodeling her kitchen or pay off one of her credit cards with the $1,200 or so she's expecting in the mail any day now.

``We did talk about putting some of it towards the credit cards,'' she said. ``We've been trying to break it down.''

``It's tempting to spend it,'' said Marci Colomey, the Claremont mom, ``but I couldn't do that.''

Barbara Correa, [phone]

barbara.correa(at)dailynews.com

CAPTION(S):

2 photos, 2 boxes, chart

Photo:

(1 -- color) Laurette Harris of Simi Valley shops with her children at a Wal-Mart, where store owners hope parents will spend their child credit rebates.

(2 -- color) A note on a sales stand at the Simi Valley Wal-Mart says the store is accepting rebate checks being mailed out to parents.

Michael Owen Baker/Staff Photographer

Box:

(1) Helpful Web sites:

(2) WHO GETS THE CHILD TAX CREDIT PAYMENT

Staff Graphic

Chart:

OUTSTANDING CONSUMER CREDIT

SOURCE: Federal Reserve

Staff Graphic