Many Will Pocket Free Rebate Check

Americans who get a check for $300 to $600 under the big tax cut approved by Congress a week ago can keep the money even if they don’t pay income taxes this year. That includes people who died last year.

The IRS estimates it will send 95 million rebate checks starting in July under the tax cut legislation, which President Bush is expected to sign this week. The bill says checks sent to people who don’t pay any taxes this year don’t have to be repaid.

“There will be winners, but there will be no losers,” said Treasury Department spokesman Rob Nichols. “This was designed as an economic stimulus.”

While the tax cut applies to this year’s taxes, the IRS will use 2000 tax returns to determine who gets a check. The amounts are based on a cut, retroactive to the beginning of the year, in the rate on the first $6,000 of a person’s taxable income.

That means many who left the work force, such as retirees, college students and parents of newborns, stand to pocket a rebate for taxes they haven’t paid in 2001. The same goes for others who earn less this year than last, and the roughly 2.3 million people older than 20 who died last year.

Analysts say it is impossible to say precisely how many people will pocket a free check. Their estimates range from 950,000 to 5 million. At $300 a check, that’s $285 million to $1.5 billion the government will give away.

Nichols acknowledged that a “small percentage” of the checks will be sent to people who won’t pay income taxes this year. Nichols said the IRS will send the check to the beneficiaries of people who paid taxes in 2000 and later died.

“You can’t say they’re not entitled to it if the law says they’re entitled to it,” IRS spokesman Don Roberts said.

The “winners, no losers” philosophy extends to 2001 taxpayers who won’t get a check because they didn’t have enough income last year. They’ll get their rebates next year as a credit when they file their 2001 tax returns. So will people who miss out because they’ve moved and the check doesn’t reach them.

Some people won’t get a check because they owe the federal government money.

The IRS compares all refunds--the rebate checks included--with past tax debts, unpaid child support and other federal debt, such as unpaid student loans, Roberts said. Checks will be reduced by the amount owed. In 1998, 2.4 million refunds were applied to federal debts such as child support and unpaid student loans, Roberts said.

The question of how to get the first $100 billion of a total $1.35-trillion, 10-year tax cut into the hands of Americans this year and next came down to rebates or reductions in the amount of taxes withheld from paychecks.

In the final negotiations, the White House pushed for the rebate.

The Treasury Department said the rebate would be distributed in two phases: a letter in July heralding the check, and then the check itself a couple of months later.

“They get two shots at advertising how great this tax cut is,” said David Keating, senior counselor for the National Taxpayers Union. “The whole thing is kind of political. We don’t see much economic effect from this.”

Tax attorney Don Alexander, who headed the IRS in the 1970s, the last time the government sent rebates, said lawmakers had to realize some checks--he estimates about 1%, or roughly 950,000--would end up in the wrong hands. Alexander said the idea of making those people pay back the money was unpalatable.

“I think they just decided that this was going to create some ill will, so why not just let them keep the money?” he said. “The world won’t come to an end if they get $300. What’s $300 between friends? Take it out to the mall and spend it.”

The number of people in this situation is hard to estimate because there are so many variables, analysts said. Not everyone who dies pays taxes. Millions of people retire every year, but it’s difficult to determine how many will see their income drop below the $12,000 threshold for a check.

Even the government doesn’t know how many people will get a refund for taxes never paid. The Bureau of Labor Statistics doesn’t have a figure for how many people move in and out of the work force annually. The IRS doesn’t know how many people leave the tax rolls from year to year.

Robert McIntyre, executive director for Citizens for Tax Justice, a frequent critic of Bush’s tax proposals, estimated the number of people who will get a check this year without paying any taxes may be 5 million.