Economic Stimulus Plan

According to economist Thomas Sowell, “the idea of a stimulus package is based on the general notion that there are things the government could do to make things better in the economy.”  In January, President Bush put forth an economic stimulus package for Congress to pass in the hopes that it would bolster the economy and stem a potential recession.  Speaker of the House Nancy Pelosi (D-CA) subsequently introduced H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008.  Working with House Speaker Nancy Pelosi, Republican leader John Boehner and Treasury Secretary Henry Paulson called for a $150 billion economic stimulus plan.  The bill passed the House on January 29^th.  Click here for the House of Representative’s “How Our Laws Are Made” document. 

The House plan would send rebate checks to 117 million families and add $50 billion in incentives for businesses. The rebates to taxpayers are meant to increase consumer spending. The business stimulus package is to encourage businesses to invest in new equipment.

A taxpayer who had earned income in 2007 will receive at least $300 from the IRS. Many taxpayers will qualify for rebates of $600 each, or $1,200 per couple. If the taxpayer has dependent children, he will receive another $300 for each child. For taxpayers who earned at least $3,000 last year, but were not required to file a tax return, they will still receive $300.

The rebates will be phased out for individuals whose AGI is greater than $75,000 and for couples with AGIs greater than $150,000. The phase-out will lessen the rebate check by 5% of any income over the limit. For instance a single taxpayer who earned $85,000, will receive $100 ($600 minus five percent of the $10,000 earned over the $75,000 limit. The real income cap for single taxpayer becomes $87,000; and $174,000 for couples.

Contributions to IRA and 401(k)s and HSAs do not count toward the income limit. Retirees who paid taxes will qualify for the rebate. If the income came from other sources, like pensions or Social Security, the rebate will be based on how much the retiree earned and how much he paid in taxes.

Economic indicators hint that the economy is heading towards a recession. There is marginal economic growth, with Wall Street reporting large losses. The home mortgage crisis has forced taxpayers and companies to cut back on spending.

For businesses, the stimulus measure would allow them immediate tax write-offs for 50 percent of the purchase price of plants and other capital equipment. It would also allow small businesses to write off additional purchases of equipment.

To ease the mortgage crisis, the package increases the limit on Federal Housing Administration loans from $362,790 to $729,750. This would allow more subprime mortgage holders to refinance into federally insured loans. It also adds one year to the cap on loans that Fannie Mae and Freddie Mac can buy to make more money available for mortgage loans.

The Senate has been considering this bill for over a week. They have added several amendments to the bill, including raising the rebate amount to $600 per taxpayer, and eligibility for low-income seniors and disabled veterans. The Senate also wants to extend unemployment insurance benefits, offer businesses energy benefits, and give help to low-income families with their energy bills.  Late Wednesday, Senate Republicans blocked a $158 billion bill that included these provisions. 

According to Senator Harry Reid, “It would be good if we can finish it today.  We may not be able to; procedurally we may have to wait until tomorrow or even Tuesday.  There does seem to be a glimmer of hope as both the Senate Democrats and Republicans appear to be agreeing on an expanded House bill that would include rebate checks for disabled veterans and retirees who have little or no earned income. 

Once they approve a package, it will return to the House for a vote, and then be sent to the President for approval.  We will continue to add updates to our site as the House and Senate finalize the bill.

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