The worldwide credit crunch, rising unemployment numbers, lackluster consumer spending, and a weak housing market have convinced the White House and Congress that the country needs an economic stimulus package. While the White House and Congress agree on using tax rebates to get money into consumers' hands, they disagree over who should get the rebates and whether to add business tax cuts to the package. At press time, the White House and Congress are still negotiating the elements of the stimulus package. Some lawmakers on Capitol Hill have signaled that a plan could be passed by Congress and sent for President Bush’s signature by February 15, the start of the next congressional recess.
Tax rebates
Tax rebates are expected to be the centerpiece of the economic stimulus plan. Various amounts are being discussed in Washington, D.C. Congressional leaders have announced a tentative agreement with the Bush Administration that calls for giving single filers a one-time tax rebate of up to $600. Married couples filing jointly would receive a one-time tax rebate of up to $1,200. Income limits would likely apply. The tentative agreement would limit the rebates to individuals with adjusted gross incomes below $75,000 and married couples with AGI below $150,000.
Top Bush Administration officials have indicated that the rebates should go to individuals who pay taxes. These comments would appear to exclude individuals who do not pay federal income taxes from receiving a rebate, a position at odds with many Democrats and some Republicans in Congress. They want the rebates to go to as many individuals as possible.
Getting rebates to taxpayers
Getting rebates into taxpayers’ hands quickly is going to be a huge challenge for the IRS. Right now, the IRS is fully engaged in processing millions of 2007 tax returns and issuing refund checks. Moreover, the government can only print about nine million checks a week.
Rebates may have to wait until the 2008 filing season ends. In that case, the government would likely start printing and sending rebate checks this summer.
Two roadblocks avoided
Two big roadblocks to swift passage of an economic stimulus plan appear to have been avoided. President Bush has agreed not to link the stimulus package to making the temporary tax breaks in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent. Further, Democrats have agreed to exempt the stimulus plan from their pay-as-you-go (PAYGO) rule, which requires that all tax incentives be offset with revenue raisers.
Business incentives
The economic stimulus package is likely to include some business tax incentives. Proponents say the incentives will encourage employers to hire more workers and invest in their operations. Among the proposals being discussed in Congress are:
- Bonus depreciation;
- Enhanced small business expensing; and
- A cut in the corporate tax rate.
Bonus depreciation. Congress has used bonus depreciation in the past to encourage business investment and spending. One proposal would give qualifying taxpayers bonus depreciation of up to 50 percent of the cost of new equipment.
Small business expensing. Another proposal would enhance Code Sec. 179 expensing. For 2008, the maximum expense amount is $128,000. The $128,000 amount is reduced, but not below zero, by the amount by which the cost of qualifying property placed in service exceeds $510,000.
Corporate tax rate. The U.S. has the second highest corporate tax rate in the industrialized world. Several proposals have been introduced to lower it from a combined federal-state rate of 39 percent to 35 percent.
Unemployment benefits and food stamps
Democrats have also proposed extending unemployment benefits and increasing food stamp benefits. Both would target lower and moderate income individuals. The White House has not signaled its support for these proposals and is unlikely to do so.
Our office will continue to monitor developments and keep you posted. If you have any questions about the tax rebates or the economic stimulus plan, don’t hesitate to contact us.
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