The Associated Press

WASHINGTON - The government began depositing tax-rebate checks in thousands of bank accounts Monday as the stimulus program aimed at giving the ailing economy a jump-start got under way early.

The Internal Revenue Service started making the direct deposits Monday with the goal of completing 800,000 payments each day over the first three days of this week. No deposits will be made Thursday while the IRS prepares a big batch of 5 million direct deposits scheduled for Friday.

The IRS had expected to begin the program in May but was able to start a few days earlier by using a com-puter system that can process payments on a daily basis. The government’s paper checks will start going out on May 9, a week earlier than previously announced.

The rebates, which are expected to reach 130 million households, range up to $600 for an individual and $1,200 for married couples plus $300 for eligible children younger than 17.

The rebates were the centerpiece of the government’s $168 billion economic stimulus package enacted in February and are designed to bolster consumer spending and lift the economy out of the doldrums.

FRUGAL SPENDING

With consumer spending screeching to a halt, the retail industry needs shoppers to splurge. That’s a big challenge, experts say.

Gas could reach $4 a gallon this summer, and a gallon of milk is now about $4 on average as well.

“People who were eating steaks last year are now eating hamburger meat and pasta this year,” said Burt P. Flickinger III, managing director of the consumer industry consulting firm Strategic Resource Group. “People are going to be able to put good food on the table, but in a few weeks they will go back to hamburger meat and macaroni.”

Alicia Flaxman, a stay-a-thome mother from Seekonk, Mass., was shopping at a Target store Monday and said she would use some of the rebate for food - cheaper items like potatoes, not more expensive meat and fish.

“My bills are double,” she said. “I go to the supermarket and I spend $200. I used to spend $120.”

The rest of the money will probably go for summer clothes for her three children, she said.

Eric Mossack of Spring Hill, Tenn., had his $1,200 rebate in his checking account Monday and spent some of it on clothing from Gap, Kohl’s and other stores - his first shopping spree in a few months, he said. The rest will go to car payments.

“We paid off something we owed and had a little extra to spend,” Mossack said.

But Bethany Blankley of Manhattan, who works in public relations, said she would immediately put the $600 she received Monday toward paying off credit cards. “The interest rates are high,” she said.

That kind of frugality doesn’t surprise analysts, who say shoppers are earmarking more of their money for groceries, the utility bills or credit card payments. Besides grocery chains, they expect discount retailers like Wal-Mart Stores Inc. and off-price clothing outlets like T.J. Maxx to benefit from the stimulus checks.

“Consumers are so feeling the pinch that ... they are really being forced to step away from luxury or discretionary purchases,” said Janet Hoffman, managing partner of the North American retail division of the consulting firm Accenture.

Retailers have already tried to grab a share of the billions of dollars flowing to households. Sears Holdings Corp. is offering discounts and freebies to shoppers who convert rebate checks into gift cards. Home Depot Inc. launched a campaign urging people to spend on eco-friendly products like energy-saving light bulbs.

Kroger Co. has already announced that shoppers can convert $300 rebate checks into a $330 Kroger gift card.

“I’d estimate that we had about 100 people indicate they were ready to get the cards as soon as they could,” Brad Casebolt, the manager of a Kroger said in Sharonville, Ohio, said Monday. “The interest in it really has been overwhelming.”

Joyce Gundling, who was loading groceries at another suburban Cincinnati grocery, said she would take advantage.

“The way groceries are skyrocketing, I’ll probably end up spending it here anyway,” she said. “This way, I get more for my money.”

DIRECT DEPOSITS FIRST

The first wave of payments are going to people who opted for direct deposit on their 2007 income tax returns.

Both the direct deposit payments and the paper checks are being processed by the last two digits of a taxpayers’ Social Security number.

For people receiving direct deposits, those with a Social Security number ending in 00 to 20 will have their economic stimulus payment deposited to their bank account by this Friday.

Those with Social Security numbers ending in 21 to 75 will get their direct deposits by May 9 and those with Social Security numbers ending in 76 to 99 will get their deposits by May 16.

For those receiving paper checks, being mailed May 9, the last checks, covering people with Social Security final digits from 88 to 99 will be in the mail by July 11 under the current schedule. The IRS estimates that about two-thirds of the payments will be paper checks and one-third will be direct deposits.

The payment schedule covers people who filed early enough to have their tax returns processed by April 15. The IRS is continuing to urge people who did not file returns because they did not owe taxes to file in order to receive an economic stimulus check.

People who do not have to file a tax return but have at least $3,000 in qualifying income may be eligible for an economic stimulus payment of $300 for an individual and $600 for a couple plus $300 per qualifying child.

“We know there are many people who are eligible for an economic stimulus payment who have not filed a tax return,” IRS Commissioner Doug Shulman said Monday.

“If you think you may be eligible, even if you don’t normally file a tax return, please check it out.”

People who have not yet filed returns have until Oct. 15 of this year to do so in order to receive a stimulus payment. The simple Form 1040A along with directions on what lines must be completed for the stimulus payments can be obtained by going to the agency’s official Web site, www.IRS.gov.

Many economists believe the country has fallen into a recession, but President Bush last week disputed that view, saying he believed it was a period of slower growth which would be helped by the stimulus checks.

Democrats, however, pointing to rising layoffs as the economy weakens, contend that more needs to be done. They are pushing for a second stimulus package that would include extending unemployment benefits for another 13 weeks,boosting food stamp benefits and adding billions of dollars for construction projects such as roads and bridges.

Presidential press secretary Dana Perino told reporters Monday that the administration was projecting that the first stimulus measure will create around 500,000 jobs this year and should be given time to work before a second package is considered.

Information for this article was contributed by Ben Feller, Lisa Cornwell and Michelle Smith of The Associated Press.

Front Section, Pages 1, 5 on 04/29/2008

Copyright © 2008, Arkansas Democrat-Gazette, Inc.

All rights reserved.

This document may not be reprinted without the express written permission of Arkansas Democrat-Gazette, Inc.

Material from the Associated Press is Copyright © 2008, Associated Press and may not be published, broadcast, rewritten, or redistributed. Associated Press text, photo, graphic, audio and/or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. Neither these AP materials nor any portion thereof may be stored in a computer except for personal and noncommercial use. The AP will not be held liable for any delays, inaccuracies, errors or omissions therefrom or in the transmission or delivery of all or any part thereof or for any damages arising from any of the foregoing. All rights reserved.