Yesterday, President George W. Bush signed into law H.R. 5140, the so-called Recovery Rebates and Economic Stimulus for the American People Act. Better known as the economic stimulus package, this bill includes several provisions that Congress and the President claim will help jump-start our economy and head off a possible recession. So, what are the details and what does it all mean for you? Read on.
The Details:
The stimulus package totals roughly $170 billion, about $120 billion of which is comprised of rebates for low- and middle-income individuals. The remaining $50 billion is accounted for by changes to relieve some of the tax burden on businesses. It also includes an expansion of loan limits for the Federal Housing Administration and government-sponsored enterprises.
During debate about the package, your National Taxpayers Union (NTU) urged Congress to think beyond this approach. Though the individual tax rebates may not be the worst idea leaders could have come up with, they simply amount to a redistribution of dollars that have already been taxed out of the economy. The business tax provisions are beneficial but only temporary, and the loan limit increases could raise risks to taxpayers in the future.
NTU led a coalition of 25 groups across the country that told lawmakers in a recent ad, "If Congress seeks true stimulus that is economically sound, it ought to reduce tax rates and avoid bailing out the housing market. Making the lower capital gains tax rate permanent and reducing inordinately high corporate taxes would have a much more stimulative effect than any rearrangement of existing tax revenue."
What It All Means for You:
Virtually every low- and middle-income American will receive a rebate check. However, as with everything in Washington, the details differ based on your 2007 adjusted gross income (AGI), which consists of your annual salary minus certain deductions (e.g., IRA contributions, alimony payments, health insurance spending, etc.) and other adjustments. The checks should begin mailing in early May.
Those who had a 2007 AGI between $3,000 and $75,000 ($150,000 for couples) will receive a minimum of $300 ($600 for couples) and a maximum of $600 ($1,200 for couples). For those who have individual income tax burdens that fall in the middle of these ranges, their check would be issued for the actual amount of their burden (e.g., if you have a tax burden of $418, your check would be $418).
There is also a rebate of $300 for every child below the age of 17.
The story is different for those with an AGI over $75,000 ($150,000 for couples). They will receive rebate checks reduced by a 5 percent "phaseout rate" for income earned above the threshold. For example, a childless individual with an AGI of $80,000 would have his or her $600 check reduced by $250 ($5,000 over threshold x 5% = $250), for a final payment of $350.
Childless individuals making more than $87,000 ($174,000 for couples) will see their rebates completely phased out. For those with one child, the total phaseout point is $93,000 ($180,000 for couples). For those with two children, that point is $99,000/$186,000 for singles and couples, respectively.
Small-business owners with up to $800,000 in revenue can write off as much as $250,000 of equipment purchases made this year. Previous law for 2008 would have allowed a $125,000 deduction for firms with up to $500,000 in revenue.
What It All Means for the Economy:
Congress and the President avoided some mistakes with the stimulus package. For example, leaders did not include money for pork-barrel infrastructure projects, as some misguided policy makers had suggested. Yet it is not certain whether the provisions that were signed into law will work as intended. During the mid-1970s, targeted federal rebates had little to no effect on America's economic woes. However, in the 1920s, 1960s, 1980s, and earlier in this decade, solid tax-rate reductions (not included in the current package) helped to keep the economy growing. You can count on NTU to continue pushing for the meaningful government budget discipline and major tax reform Americans deserve.
National Taxpayers Union
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