Stimulus plan, tax rebates for household, higher loan for businesses
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January 24th, 2008
The White House and House Democrats struck a deal Thursday on a $150 billion stimulus plan that will provide tax rebates to most U.S. households. The move is part of a plan to give the struggling economy a boost.
The tax rebate plan is expected to apply to nearly 116 million households, and the average full rebate will be in between $600-$1,200 range. Anyone making less than $75,000 a year is eligible for a full tax rebate. While the full details of who gets how much haven’t been released yet, these parameters have been made public:
- Individuals paying taxes can get back a maximum of $600
- Working couples can get back up to $1,200, and even an extra $300 per kid
- Almost everyone working will get $300
The rebates begin to phase out in the $75,000-$150,000 range (the low end for individuals, high end for couples). An individual making more than $75,000 and a couple making more than $150,000 won’t get anything back unless they have kids. Individuals or couples with family have a higher ceiling. Anyone making considerably more money won’t see any tax rebate at all.
The package would let businesses deduct 50% of the cost of new equipment bought this year, saving firms $50 billion in “near-term” taxes, the White House said.
In addition, small businesses would be able to fully expense capital investments of up to $250,000.
“This package has the right set of policies and is the right size,” said President Bush.
The White House has said a stimulus package equal to 1% of GDP should lead to a net gain of 500,000 jobs this year.
The deal also provides business investment tax credits and frees up Fannie Mae (NYSE:FNM)
The housing provisions “will help restore the market for jumbo loans, but will not completely restore the mortgage market,” wrote University of Maryland business professor Peter Morici. “Loans for more expensive homes and loans for prospective homeowners who are not ‘prime,’ but who are still reasonable credit risks, will remain difficult to obtain.”
Senate Majority Leader Harry Reid expects the Senate to “work to improve the House package by adding funds” for jobless benefits, food stamps, state budget relief and infrastructure investment.
With policymakers racing to put together a package as financial markets showed signs of buckling over the past week, the agreement came together “in record time,” House Speaker Nancy Pelosi said at a news conference.Unlike the Federal Reserve’s emergency 75-basis-point 14terest-rate cut on Tuesday, much of the fiscal stimulus plan will be slow in coming — even if there are no legislative hang-ups.
“If all works well . . . we would be talking about starting to get checks out in May,” said Treasury Secretary Henry Paulson.
At that point, it will take up to 10 weeks to mail out “the lion’s share” of the 117 million checks, he said.
With a further lag in people’s spending the money, “this plan is not expected to have any meaningful impact on the economy until much later this year, perhaps in the fourth quarter,” wrote Bernard Baumohl, managing director of the Economic Outlook Group.
While the package is expected to deliver a short-term economic boost, liberal Democrats and pro-growth Republicans argued it missed long-term opportunities.
“We could create millions of jobs by rebuilding and repairing public schools, bridges and highways,” said Lawrence Mishel, president of the liberal Economic Policy Institute.
Brian Riedl, budget analyst at the conservative Heritage Foundation, said the best way of helping the economy is to “increase incentives to work, save and invest” through lower marginal tax rates.
“Tax rebates don’t create wealth; they redistribute wealth,” he said. “Every dollar must first be taxed or borrowed out of the economy.”
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