Over the past year and a half Americans have seen an erosion of personal wealth. The value of homes and retirement accounts have taken big hits and that's led people to spend less. The less people buy, the more jobs are lost. The stimulus tax credit is designed to help turn that around.
At the Super Target in West St. Paul, Cheryl Salinas was well aware of the tax credit, which has slightly increased her take-home pay. Salinas said she noticed the extra money a few weeks ago.
Single filers, like Salinas, are getting $400 between now and the end of the year. Joint filers can expect twice that.
The credit will also be in place next year. The vast majority of Americans quality for it, except for high income earners and people who make almost nothing. Employers were required to increase paychecks starting April 1.
Salinas, a single mom with three kids, said she can use every penny of the extra money.
"Getting necessities. That's what I need for the household, for the kids," Salinas said. Last year Salinas spent her lump sum tax rebate on an awning to shade her home. This year the extra money will help her cover more basic needs.
"Just maintaining," Salanias said. "Put food on the table and pay the bills."
The point of the tax credit is to get Americans to spend more money. Minnesota State Economist Tom Stinson said the hope is that by giving people more money a little at a time, rather than in a lump sum, they will spend the cash as quickly as they get it.
"What is expected is that people will spend that money," Stinson said. "They'll spend that money on pizzas or going to the movies or discretionary items or food or something and those that will begin stimulate the economy and begin to increase consumer spending."
Individual filers, like Cheryl Salinas, who are paid every two weeks are getting about $20 more per check. Joint filers get twice that.
The White House says the tax credit will pump more than $1.1 billion into the pockets of more than two million Minnesota families.
Stinson said that's not a lot of money, considering Minnesota has about a $250 billion economy. Still, Stinson said every bit of additional spending is needed to save and potentially create jobs. Stinson said the places where the extra money will probably be spent tend to employ a lot of people.
"The businesses that are most likely to see some stimulus money showing up in their cash registers are discretionary spending; pizza, eating food away from home, entertainment, some clothing things like that," Stinson said. "Things that aren't necessarily essential but are things that make you feel better."
The question is whether people, who are now accustomed to cutting back, will choose to save the extra money or pay down debt, instead of spending it. Economist Laura Kalambokidis said research suggests people are likely to spend it.
"There's a little bit of a cost, an inconvenience, to saving a small amount of money," said Kalambokidis, who teaches applied economics at the University of Minnesota.
Kalambokidis said that cost of savings lies in the "hassle factor" of purposefully putting money aside.
"Fairly recent economic research suggests that when you give people back money in smaller increments over the course of the year, they're more likely to spend it than if you give them a lump sum," Kalambokidis said.
Economists say in addition to places like restaurants and theaters, general merchandisers like Target and Wal-Mart will likely be beneficiaries of the tax credit.
A sign of whether that's true could come Thursday when Target, Wal-Mart and other big retailers release their April sales numbers.