If Keynesian economics had any validity, the U.S. economy would have boomed in the 1970s after the 1975 rebate was enacted. Researchers failed to find any beneficial impact from that rebate, however, and President Jimmy Carter withdrew a similar proposal in 1977 when the Democrat-controlled Congress criticized it as being an ineffective economic stimulant. Even if Keynesian theory were correct, it would be impractical because the money that the government would give consumers must come from somewhere. In the 1970s, the tax rebate was financed by deficits, which meant that there was less money available for investment spending. Again, the result is no increase in aggregate demand or total spending.
Rebates are really a form of government spending.
It should not be surprising that rebates have little stimulative effect, because a rebate is really the same as a government spending program. Tax relief occurs when government does not take money from people in the first place. A spending program occurs when the government collects money and then gives it to someone. Even if policymakers decide only to give rebate checks to taxpayers, this does not change the fact that the money is cycled through Washington and therefore represents government spending. Indeed, the Senate Budget Committee acknowledged this fact when the original Senate budget resolution was adopted on April 6, 2001.