About three hours ago, the President signed into law H.R. 5140, The Economic Stimulus Act of 2008 , less than four weeks after he first proposed Congressional action.
We are enormously pleased with this rapid and bipartisan legislative success. The final bill passed the House 380-34, and the Senate 81-16. Here is a one-page summary of the bill, along with the text of the President’s remarks.
Details on rebate checks
A full description of the bill is below. The biggest part of the bill is the tax relief delivered through rebate checks.
- Qualifications: To qualify for a rebate, a person must:
- file a tax return for 2007 or 2008;
- have at least $3,000 of “earned income” or positive income tax liability in 2007 or 2008 (earned income is redefined to include Social Security benefits and Veterans’ benefits and compensation); and
- include a valid Social Security number on his tax return – those taxpayers with individual taxpayer identification numbers (ITINs) are not eligible for rebates (this is intended to prevent illegal aliens from participating).
- Individual Rebate: All qualifying taxpayers will receive a minimum of $300 ($600 in the case of a joint return), up to a maximum of $600 ($1,200 for joint returns) based on their income tax liability.
- Child Rebate: All individuals eligible for rebates also will receive $300 for each child living in their household that would qualify for the existing child tax credit (Note: children of illegal aliens would not be eligible, even if the children are U.S. citizens).
- Phase-Out: The amount of a taxpayer’s aggregate rebate (the individual rebate plus the child credit) will be reduced by 5 cents for every dollar of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). For example, the aggregate rebate of a joint return with $160,000 of AGI would be reduced by $500.
- U.S. Possessions (Puerto Rico, Guam, etc): The U.S. Treasury will reimburse territories for the cost of providing rebates to their residents on the same terms and conditions.
- Hold Harmless: Taxpayers who receive a rebate greater than merited based on 2008 tax info owe no money to the IRS; conversely those taxpayers who receive a rebate worth less than merited based on 2008 tax info are eligible for the difference when they file their taxes in the spring of 2009.
Because this happened so rapidly, rebate checks from the IRS will begin to be sent out the second week in May. Electronic deposits should begin the first week. It will take several weeks for all the checks to go out. For more details, go to the IRS website
For the overwhelming majority of taxpayers, these are rebates of taxes that will be paid in 2008, so I’m going to oversimplify slightly and just refer to them generically as ‘rebate checks.”
Scorecard: 8 1/2 out of 9
I’d like to return to the President’s proposal from three weeks ago today, and review how we did. I wrote then that the President said an effective growth package must be:
- Big enough to move the needle on a $14.5 trillion economy. The President proposed a package that’s 1% of GDP, or about 145 billion dollars in 2008.
The final bill is $168 B over two years, and our guess is that at least $152B will go out the door in 2008.
- Immediate. This means (i) Congress should pass legislation immediately. (ii) Policies with immediate macro effects are better than those with lagged effects.
The Congress passed the bill within three weeks of the President’s proposal, and the policies will have immediate macro effects (since they’re the ones the President proposed). - Based on tax relief. Individuals, families, and businesses will react quickly (and more effectively) if they are deciding how to spend more of their own money.
The entire package consists of tax relief, with two exceptions: some people will get checks that exceed their tax liability, and the bill increases the FHA & GSE conforming loan limits. But there is no spending through government bureaucracies, so we clearly met this test. - Broad-based. Many were emphasizing “targeted.” In contrast, we think policies should be neutral and distort decisions as little as possible.
I think this one was a win-win. We got what we want — the tax relief is very broad-based, and not targeted at specific industries or sectors. At the same time, Speaker Pelosi was able to negotiate to “target” the income tax relief to low and middle-income people. While the President’s preference was to have income tax relief to those who pay income taxes, this was a principled compromise that was worth making. - And temporary.
All provisions in the bill expire at the end of 2008.
The President said the bill must not:
- Raise taxes.
- Waste money on federal spending without an immediate positive effect on GDP growth.
Finally, we got a little more specific. Three weeks ago, the President said that a growth package must:
- Include tax incentives for American businesses to invest (especially small businesses).
- Include “direct and rapid income tax relief” to increase consumer spending.
How big is my rebate? What do I need to do?
The following calculations will work for virtually everyone reading this email. The only exceptions are for those with very very low taxable income. Rather than add 5X more complexity to the descriptions below, I’m going to leave those folks out of this quick-and-dirty algorithm.
If you’re married:
- Start with $600 for you + $600 for your spouse = $1200
- Add $300 per kid
- If your income last year is over $150,000, subtract ( 5% X (your income – $150,000) ) from the above subtotal
- You now have your rebate amount. If you end up with a number that’s less than zero, you’re out of luck – no rebate.
If you’re single:
- Start with $600
- Add $300 per kid
- If your income last year is over $75,000, subtract ( 5% X (your income – $75,000) ) from the above subtotal
- You now have your rebate amount. If you end up with a number that’s less than zero, you’re out of luck – no rebate.
You almost certainly don’t need to do anything to get a rebate check. As long as you file a tax return for 2007 income, you’re in the system. The IRS will do all the rest.
To close, here’s a Presidential quote from today’s signing ceremony. It stresses the importance of a flexible and dynamic market economy. We cannot prevent all bad things from happening. We can work to make sure the private sector maintains the flexibility and resiliency to adapt quickly when they do.
Over the past seven years, this system has absorbed shocks — recession, corporate scandals, terrorist attacks, global war. Yet the genius of our system is that it can absorb such shocks and emerge even stronger. In a dynamic market economy, there will always be times when we experience uncertainties and fluctuations. But so long as we pursue pro-growth policies that put our faith in the American people, our economy will prosper and it will continue to be the marvel of the world.