One of George Bush's first acts as President was an economic stimulus package that resulted in tax rebate checks. Money came flying out of Washington and went straight to Wal-Mart. We joined the party and bought a large microwave oven with our cut of the pie. Americans went on a spending spree with this cash. And, the most important part was that most of us spent more than the checks we received. These checks sort of primed the spending pump. We received $600 and spent $800. Therefore, the overall impact of the rebates was far more that the dollar values on the checks.
Apparently, Washington was so pleased with them during the last economic downturn that they have gone right back to the well this time. The Bush Administration and Congress have agreed in substance to a tax rebate plan that could result in checks as early as May of this year. Once again Washington is going to throw money out on the streets to see if it will jump start the economy. Maybe we Americans will once again go on a spending frenzy with this cash. The Feds are banking on Americans taking this cash and spending it. It would be a real nightmare for them if taxpayers did anything responsible with the money like pay down debt or put it in savings for a rainy day. But, they have a lot of faith in average Americans that this money will burn a hole in their pockets.
Here are some of the details of the agreement.
- Most individuals who pay income taxes would get $600; working couples would receive $1,200. Workers who make at least $3,000 but don't pay income taxes would get checks of $300 to $600. People in both groups would get $300 credits for each of their children.
- Businesses would be able to deduct an additional 50% of the cost of certain investments in 2008. In addition, small businesses would be able to write off more expenses from their taxes: $250,000, up from $125,000.
The checks would be gradually phased out for wealthier taxpayers (individuals - $75000; couples - $150,000). Couples with income of more than $174,000 would get nothing, unless they have children.
Of course the devil will be in the details. I'm still curious to see exactly what is meant by working couples. I would assume this just means a family that filed a joint tax return. I can't imagine that the government would punish a family for having a stay-at-home parent.
So, let's look at some dollars:
- The Cantrell family consists of myself, my wife, and five children. We could be looking at a tax rebate of as much as $2,700 - $1,200 for the couple and $300 per child in addition.
- An individual with two kids could receive $1,200 - $600 individually and $300 per child.
- Of course to receive a tax rebate of $600 per person, a taxpayer would need to at least have paid this much in tax for 2007. Otherwise the rebate would be limited to $300 for taxpayers making over $3,000.
The rebates will be based upon a taxpayers 2007 tax return. So, if a taxpayer has not filed the return by the time the rebate checks start printing, they will not receive payment. Rebates could be delayed for any taxpayer that extends past April 15th this year. However, some mechanism may be put in place to include the rebates in 2007 tax returns filed after the deadline. Otherwise, the rebate process would not even start for late filers till after the IRS receives and processes the 2007 returns. This might just be a great year to get it all done on time.
A final thought. Remember, these are tax rebates. This isn't just some free cash falling out of the sky. This is your hard earned tax dollars being returned. It seems funny to me that periodically Washington realizes taxpayers would be able to be a lot more economically active if they didn't have to pay so much in taxes. A rebate check like this is sort of an admission of guilt on the part of the government that taxes go a long way in limiting the buying and saving power of families.
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