In a deal that lawmakers and the White House hope will help jumpstart a wheezing economy, leaders on both sides of the aisle agreed on a $150 billion economic stimulus plan that would hand most taxpayers rebate checks of between $600 and $1,200.
Under the plan agreed to on Jan. 24, individuals who pay taxes would receive up to $600 in the mail. Those who earn at least $3,000 but don't pay taxes would get $300. Working couples would receive $1,200. Families with children would be entitled to receive an extra $300 per child. Roughly 117 million Americans will receive a check in the mail, including over 35 million who would not have gotten a simple tax rebate.
At press time, the House was expected to approve the plan Feb. 6, while Democratic and Republican lawmakers set a Feb. 15 deadline to send the measure to President Bush.
In a statement, the president said that agreement on the plan was borne of "the kind of cooperation that some predicted was not possible here in Washington."
The agreement was hammered out amidst testy negotiations between both parties and the White House -- with each side eventually agreeing to a number of compromises.
The White House relented on its insistence on making the tax cuts of 2001 and 2003 permanent, while Democrats agreed that the plan not include extending unemployment benefits or increasing food stamps. Republicans maintained that they got Democrats to agree to a plan that focused mostly on tax cuts, while Democrats trumpeted the fact that they persuaded the administration to endorse a stimulus package that would primarily benefit middle- and working-class Americans.
The cost of the stimulus package will balloon the 2008 budget, the deficit for which is already projected at $219 billion. Over 10 years, House officials said that the plan would add roughly $110 billion to the national debt.
The tax rebates would gradually phase out for individuals whose incomes exceed $75,000 and joint filers making more than $150,000, but there would be partial rebates for individuals who earn up to $87,000 and couples who make up to $174,000. The rebates would cost about $100 billion. The plan would also boost the size of mortgages that could be financed by Fannie Mae or Freddie Mac.
Businesses would get a package of tax breaks worth about $50 billion. A temporary change in the Tax Code would allow businesses that buy new equipment this year to deduct an additional 50 percent of the cost of their investment in 2008.
House minority leader John Boehner, R-Ohio, acknowledged that lawmakers had heard requests for additional provisions in the package. "We had members from both sides of the aisle who want endless things in the package," he said, cautioning, however, that the package "is only a short-term measure to deal with the unsettled economic situation."
Meanwhile, House Speaker Nancy Pelosi, D-Calif., labeled the package "remarkable" and said, "It's about putting money in the hands of America's middle class."
Tom Ochsenschlager, vice president of taxation at the American Institute of CPAs, sees a parallel with the 2001 tax rebates. "We have a little bit of a test tube there in how well they will work," he said. He noted that the Congressional Budget Office determined that in 2001, about a third of the rebates were spent within three months, another third within six months, and the other third were either invested or spent after six months. Even if invested, the rebates would benefit the economy, he contended. "The government recognizes there's a problem here, and if that doesn't work they'll probably do something more," he said.
He also pointed out that the majority of taxpayers would actually see their rate reduced on the 2008 return, so they won't have to pay taxes on the rebate amount. In 2008, the tax rate would be cut from 10 percent to 0 percent on the first $6,000 of taxable income for individual taxpayers, and the first $12,000 of taxable income for couples.
"It's a mischaracterization to bill it as a tax break," said David Lifson, a partner at New York-based Hayes & Co. and 2007-2008 president of the New York State Society of CPAs. "What the government is basically saying is that out of all the taxes everyone paid, we're handing out a subsidy. It's going to be a bit of a challenge to use the IRS in the middle of its busy season. It's so easy to have winners and losers in something like this, but it probably will change a lot before the final package is signed off."
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