(Save Some) Green Grocer

Does Acme's tax-rebate deal make sense?

by Joel Tannenbaum

econ 101

The Economic Stimulus Act of 2008 was signed into law by the president of the United States on Feb. 13, 2008. The Act, which had broad bipartisan support, was intended to reverse an increasingly severe economic downturn in the U.S. through, among other things, tax rebates issued to individuals and households. And so it came to pass that, beginning this month, checks from the federal government went off in the mail: $600 for individuals and $1,200 for a jointly filing married couple.

Realizing that many of their potential customers had cash windfalls coming, national retailers quickly prepared marketing strategies to attract as much of that money as possible. Wal-Mart offered to cash the checks for free and hoped that big price cuts would catch people's eyes once they were already in the store. Radio Shack had a more aggressive plan, offering 10 percent bonuses to those who used their checks on purchases of $50 or more. Sears, Lands End and Kmart all offered an extra 10 percent in-store credit — provided, of course, that people spent their entire rebates at their stores. In other words, a $600 rebate check gets you $660 in goods.

These deals failed to convince many economic analysts that the Stimulus Act would stimulate anything. Most American households are sinking into debt, they said, so if the country hands them a check, the rational thing for them to do would be to service that debt — make car payments, pay off mortgages, credit card bills, etc.

Since then, though, there's been a development those analysts didn't count on: The cost of food and fuel shot up. As a result, for many, servicing credit card debt has taken a back seat to filling the fridge.

Enter Acme Markets. The Malvern-based subsidiary of Supervalu Inc., a publicly traded grocery retailer/distributor is offering the same deal as Sears and Kmart — $660 worth of product for a $600 check — only with food. "Customers are more and more value-driven. They're looking to cut costs," says Bart Bohlen, Acme's senior vice president of marketing. "And $120 — that's a whole week of groceries."

Though he couldn't offer any specific numbers, Bohlen said the program is going well, both in low-income areas of Philadelphia and Delaware County, and in its Main Line stores. But we got to wondering: Is giving tax rebates to be spent on food an intelligent response to the current economic climate?

William Stull, a professor of economics at Temple University, thinks so. He believes the tax rebates will stimulate spending, and sees the logic of programs like Acme's. "Look, food is pretty important," he says. "Prices for food are going up. It might be an advertising gimmick. But the rebate is supposed to be targeted toward spending, so there you go."

Not so fast, says Stephanie Bittner, community education director for Consumer Credit Counseling Services of Delaware Valley, a local nonprofit. "People need to be aware that if they are in credit card debt, if you get an $1,800 rebate and use it to pay down credit card debt, if you're the type of person who normally only makes the minimum payment ... you could save thousands in interest over the course of a year, as opposed to $120 in gift cards," she says. The program might be fine for families with no debt, but for everyone else, she argues, paying down debt is a better value. "I tell people, why put all your eggs in one basket? If next week your car breaks down, your Acme store credit isn't going to help you."

Dave Lindorff, former correspondent for Business Week and co-author of The Case for Impeachment: The Legal Argument for Removing President George W. Bush from Office, says he doesn't begrudge people spending their rebate checks on food — "What bothers me is the idea of people in economic distress spending them on luxury items, which is what some retailers are trying to push," he says. But for Lindorff, who lives in Ambler, the checks in general are an economic disaster that's driving the U.S. toward recession rather than away from it. "They need to stimulate the economy, so they borrow the money. It's all borrowed money. This puts foreign investors off, so the dollar declines. The weak dollar means that imports are more expensive. And it makes the credit crunch even worse. This is the classic stealing-from-Peter-to-pay-Paul."

Indeed, the rebates have a price tag of more than $150 billion, and it's difficult to understand how they'll be financed. According to the White House, the rebate checks "will inject more money into our economy, support job creation and boost economic growth." But that's a risky bet. According to the Tax Policy Center, a nonpartisan research group run by the Brookings Institution, the richest 20 percent of American households will receive 27 percent of the rebate money. The next highest bracket will get 31 percent. But the poorest 20 percent will see only 6.5 percent of the spoils. (Individuals with less than $3,000 in qualifying income aren't eligible. People with just over $3,000 may receive a reduced rebate of $300.) And as economist and New York Times columnist Paul Krugman pointed out in a discussion of the Center's findings, the richer households are not "liquidity-constrained" — their spending is unlikely to be affected by the rebate checks. If you put more money in their hands, they might just keep it. And that won't help stimulate the economy at all.

Still, the rebate checks are coming. Beyond paying down debt, which for some will be a luxury, what are economically struggling Philadelphians to do with them?

"If you really want to be a patriot," says Lindorff, "spend the money on things made in the U.S. Buy homemade furniture from the Amish. But who's gonna do that?"

That's part of the problem. At least at Acme, a significant amount of what people spend will be on American-grown food products; the same can't be said for retailers like Wal-Mart, whose products are overwhelmingly imported. And to date, no Philadelphia-area organization has stepped up with an equivalent to these programs to encourage us to spend our rebate checks on locally grown produce or, indeed, locally made anything. Of course, there's still time — the checks keep coming until July. Are you there, Farm to City? Reading Terminal? Judy Wicks? We know you can't compete with Wal-Mart, or even Acme. But this is an opportunity for you. Anybody home?

(joel.tannenbaum@citypaper.net)