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The Incomplete Idiots Guide to the Economic Stimulus Act of 2008

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Everything you could possibly want to know about the Economic Stimulus Act of 2008. Well, probably not everything...but enough to keep you busy reading for a few minutes, at least. :classic:

(Much of this was already posted in various places of the How will you spend your rebate? thread. Now that this has been passed by both the House and Senate, I figured I'd pull a lot of the main info together and post it for easy reference. Since it doesn't really pertain to the question asked at the start of the other thread, I decided to start a new thread. Please accept my apologies if this was a poor decision.)

On February 7, 2008, the House and the Senate agreed on a version of the economic stimulus bill, and the President has said he will sign it next week. The bill is H.R.5140, the Economic Stimulus Act of 2008.

The bill establishes "recovery rebates" for individuals, to be sent to people in advance via check. These so-called rebates are established as refundable tax credits. (A refundable tax credit is a credit that can result in you receiving money from the government that you never paid them. The Earned Income Credit is a refundable credit. A non-refundable tax credit can only reduce your tax liability to zero; in other words, it only affects money that you already paid/owe the government. The Child Tax Credit is a non-refundable credit.)

Eligible individuals receive a basic credit that is the greater of the following 2 amounts:

-Their net income tax liability for 2008, up to $600.

-$300, if the individual has at least $3,000 in earned income.

(amounts are doubled for joint returns)

If your adjusted gross income (AGI) is greater than $75,000 (double for joint filers), then the amount of your credit will be reduced by 5% of the amount of your income over the limit. So if you're a single filer making $80,000 your basic credit will be reduced by $250 (($80,000 - $75,000) * 0.05 = 250).

Individuals who are eligible for any amount of the basic credit are also eligible for the qualifying child credit. This is a $300 credit for each qualifying child. The definition of a qualifying child is the same as for the child tax credit. (Again, this is based on 2007 tax returns.)

The rebates are structured around a tax cut. Yes, a tax cut. This isn't stated anywhere in the actual text of bill, but it is stated in the following locations:

-A Fact Sheet from the White House

In 2008, taxes would be cut from 10 percent to zero percent on the first $6,000 dollars of taxable income for individual taxpayers and the first $12,000 of taxable income for couples.

-The Congressional Record for the House of Representatives, January 29, 2008

The tax element of this package has been called a rebate, but in essence, it's a tax cut, a tax cut for millions of low- and middle-income Americans, those who need it the most, those with a moderate income. link
I enthusiastically support the middle class of this country, and we are doing it in this bill. Thirty-seven million Americans who were left out of the 2001 and 2003 tax cut will get close to $28 billion of this tax cut. I enthusiastically support that type of economic prosperity. link
Another disturbing feature of H.R. 5140 is that, instead of taking the fiscally responsible course and pairing the tax cuts with spending cuts, this bill simply adds to the national deficit. Madam Speaker, unless Congress acts soon to reign in its excessive spending the American people will face confiscatory tax rates or skyrocketing inflation. link

If I'm understanding all of this correctly, then here is what is happening:

-The government cuts a specific section of taxes for the current tax year.

-This means that many people will have a smaller tax liability when they file taxes next year (for the 2007 tax year).

-If you know that people are going to owe less money in taxes, what is the logical solution? Decrease the amount of money that you withhold from their paychecks, right? Wrong. Send them the extra money that they will be receiving in their tax refund next year. But wait! They haven't actually paid this money yet. Oh...hmm...well, we'll just keep taking the same amount out of their paychecks, and it'll all add up by the end of the year.

The checks are an advance on next year's refunds, and most, if not all of the money, will be deducted from taxpayers' refunds in 12 months' time. CNN article

If the amount of your rebate is greater than the decrease in your tax liability because of the temporary tax cut, you won't be required to repay that rebate.

Taxpayers will reconcile the amount of the credit with the payment they receive in the following manner. They would complete a worksheet calculating the amount of the credit based on their 2008 tax return. They would then subtract from the credit the amount of the payment they received. For many taxpayers, these two amounts would be the same. If, however, the result is a positive number (because, for example, the taxpayer paid no tax in 2007 but is paying tax in 2008), the taxpayer may claim that amount as a credit against 2008 tax liability. If, however, the result is negative (because, for example, the taxpayer paid tax in 2007 but owes no tax for 2008), the taxpayer is not required to repay that amount to the Treasury. Otherwise, the checks have no effect on tax returns filed in 2009; the amount is not includible in gross income and it does not otherwise reduce the amount of withholding. link

These advance payments will be based on 2007 tax returns, and will start being sent out in May. If you file your return late, or file an extension, you'll probably receive your payment later than most people.

The rebates would be based on taxpayers' 2007 tax returns. Those who file extensions or file late would likely receive their checks later than regular filers, a U.S. Treasury spokesman said last week. The checks will be sent out automatically; taxpayers don't need to apply. link

To return to the question of whether this is "free money", I guess that depends on the specifics of your individual situation. If your net tax liability for this year is less than the amount of the rebate that you receive, then I guess the difference between the two amounts would be free money, because you'll have received money that was never yours to begin with. But if your net tax liability is more than your rebate, then your rebate isn't free money - it's just an advance refund of money you'll be sending to the government for the rest of the year.

(To the best of my knowledge, all of the above information is correct. However, it's always possible that I'm misinterpreting something somewhere, so believe everything at your own risk!)

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At this point your best bet is to take the money put it into a high yeild 12 month certificate or option and then use to pay back in 2009.

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At this point your best bet is to take the money put it into a high yeild 12 month certificate or option and then use to pay back in 2009.

Pay what back in 2009?

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I predict China's economy will be stimulated by our "rebate".

It will be if we obey Bush and spend it on TVs. :dead:

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What I can't believe is how willingly Democrats went along with a purely political stunt. This country needs backbones, not idiots thinking of the next election. If the money were a recurring event, it has the potential to be a stimulus. Survey's say that a lot of people plan to use the "rebate" to pay-off or pay-down existing debt. The rest will head to Wal-Mart to buy Chinese-made goods. Some stimulus that will be.

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At this point your best bet is to take the money put it into a high yeild 12 month certificate or option and then use to pay back in 2009.

This is what I may very well do. Either that or pay off credit card debt, because the money I save on interest will make up for the lower refund I get in '09. Considering I just realised I have enough in my account to pay it off this month, though, this is unlikely.

My boss also advised me today that he's trying to negotiate a higher salary for me with HR...though I won't count on that unless I actually see it on a paycheck.

I figure I'll stimulate the economy a lot more if I'm on secure financial footing, and can afford to have a few little luxuries here and there.

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What I can't believe is how willingly Democrats went along with a purely political stunt. This country needs backbones, not idiots thinking of the next election. If the money were a recurring event, it has the potential to be a stimulus. Survey's say that a lot of people plan to use the "rebate" to pay-off or pay-down existing debt. The rest will head to Wal-Mart to buy Chinese-made goods. Some stimulus that will be.

I agree.

I'm not an expert, so I don't know the best way to stimulate the economy, but it seems to me that it's going to take a lot more time and effort to strengthen it in the long term.

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All this does is stimulate the economy now before the election, leaving the bill for next year when a Democrat is in office. Then the Republicans can blame the Democrats for making the recession worse.

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All this does is stimulate the economy now before the election, leaving the bill for next year when a Democrat is in office. Then the Republicans can blame the Democrats for making the recession worse.

ahhhhhhhhhhh, excuse me, but Democrats and Republicans can both take the blame. It did manage to get through a Democratic House AND Senate did it not? Sheesh.

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ahhhhhhhhhhh, excuse me, but Democrats and Republicans can both take the blame. It did manage to get through a Democratic House AND Senate did it not? Sheesh.

I guess I failed to point out the political ploy aspect of this. If the Democrats don't pass this, it makes them look bad in an election year. If they do pass this, it basically moves extra tax burden to after the election. Damned if you do, damned if you don't. Obviously Bush knows this, which is why he instigated this in the first place. It's not realistically going to help the economy, it's just there to buy any favor from voters he can for his party before the elections. And just like the massive debt he is going to walk out on, it's a mess for the next president to clean up.

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I guess I failed to point out the political ploy aspect of this. If the Democrats don't pass this, it makes them look bad in an election year. If they do pass this, it basically moves extra tax burden to after the election. Damned if you do, damned if you don't. Obviously Bush knows this, which is why he instigated this in the first place. It's not realistically going to help the economy, it's just there to buy any favor from voters he can for his party before the elections. And just like the massive debt he is going to walk out on, it's a mess for the next president to clean up.

I see - so it's all the GOP and Bush's fault again. That's a nice unbiased look at it. So basically the Dems are spineless wimps and horrible leaders since they can't seem to beat back this 'dumb' President yet again. According to your view, Bush beat them to the punch again. (and no - I'm not a Republican).

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I see - so it's all the GOP and Bush's fault again. That's a nice unbiased look at it. So basically the Dems are spineless wimps and horrible leaders since they can't seem to beat back this 'dumb' President yet again. According to your view, Bush beat them to the punch again. (and no - I'm not a Republican).

If you ever read anything I've posted on here, you would rarely find a posting where I called Democrats much greater than spineless wimps. But it's Bush's proposal, so why shouldn't it be Bush's fault? If the Democrats were proposing this, you would have no problem calling it a Democratic proposal.

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If you ever read anything I've posted on here, you would rarely find a posting where I called Democrats much greater than spineless wimps. But it's Bush's proposal, so why shouldn't it be Bush's fault? If the Democrats were proposing this, you would have no problem calling it a Democratic proposal.

Wrong again. I hold BOTH parties responsible and said so.

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Wrong again. I hold BOTH parties responsible and said so.

I hold both parties responsible, also. This bill is 80% Bush's responsibility, 10% the Republicans in congress, and 10% the Democrats in congress. But the fact is that this bill would not even exist had Bush not conjured it up. If you are trying to spread the blame evenly for this, try again.

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I hold both parties responsible, also. This bill is 80% Bush's responsibility, 10% the Republicans in congress, and 10% the Democrats in congress. But the fact is that this bill would not even exist had Bush not conjured it up. If you are trying to spread the blame evenly for this, try again.

That's just dumb. A 90/10 split is holding both responsible?

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I predict China's economy will be stimulated by our "rebate".

Did you know that for every dollar spent on a Chinese made product, only 3 cents ends up back in China?

It's funny how Katie Couric is relied upon more for macro-economic insight than professors and professionals who have studied the issue for their whole life.

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I guess I failed to point out the political ploy aspect of this. If the Democrats don't pass this, it makes them look bad in an election year. If they do pass this, it basically moves extra tax burden to after the election. Damned if you do, damned if you don't. Obviously Bush knows this, which is why he instigated this in the first place. It's not realistically going to help the economy, it's just there to buy any favor from voters he can for his party before the elections. And just like the massive debt he is going to walk out on, it's a mess for the next president to clean up.

Absurd. You need to stop watching Olberman everynight. Right or wrong, this stimulus was passed by EVERY Democrat in the Senate. The only dissenters were Republicans.

But don't let the facts get in the way of your whacky conspiracies.

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I hold both parties responsible, also. This bill is 80% Bush's responsibility, 10% the Republicans in congress, and 10% the Democrats in congress. But the fact is that this bill would not even exist had Bush not conjured it up. If you are trying to spread the blame evenly for this, try again.

Well, if you are so convinced about this "rotten" rebate, why don't you take your check and immediatley donate it to the Democratic party. Good luck.

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I agree.

I'm not an expert, so I don't know the best way to stimulate the economy, but it seems to me that it's going to take a lot more time and effort to strengthen it in the long term.

It's a drop in the bucket. I am writing this as someone who studies such things in my line of work:

The problem isn't with the stimulus, which is an easy thing to critique. The problem is that the FED and our Govt is, as always, late to the party. Yes, the stimulus won't stave off a recession as the politicians want you to believe, but it will be a legitimate help to our economy in the 3Q and 4Q. I have read that most experts believe it will add 1.0-1.50% to GDP growth in 3Q and 4Q and will increase 2008 GDP by .5%.

Obviously the package is an election year ploy and you are correct in being skeptical of the cronies in Washington, but the stimulus will add growth to our economy when all is said and done. If we are in a recession currently, the package will be a boost to our recovery efforts.

And the idea that this stimulus will help China more is absulety stupid. That wouldn't hold water with any respected economist or financial expert.

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Hmmm...when I was in high school, I went on a crash diet. And it worked-I lost 20 pounds.

Then I went back to my old eating habits and gained 35 pounds (in other words, I was in worse shape than I started).

It wasn't until I took the time to research all of my diet choices, learned about nutrition, and changed my eating and exercise habits, that I was able to take and keep the pounds off. Since then, there have been times I've put on 5-10 pounds, but with a better understanding of nutrition and fitness, I've been able to get back on track.

Yes, I know we're talking about the stimulus package but it seems to fit in somehow.

BTW, I don't remember mentioning China in any of my posts. I just said I prefer a long term solution, and I will stand by that statement.

Edit: OK, I quoted a poster that included China....I was actually agreeing with the statement that I couldn't believe the Democrats went along with it so quickly.

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Did you know that for every dollar spent on a Chinese made product, only 3 cents ends up back in China?

It's funny how Katie Couric is relied upon more for macro-economic insight than professors and professionals who have studied the issue for their whole life.

Well, a lot of people listen to economists/business experts before they'll listen to an ecologist, so it's only fair. ;)

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Did you know that for every dollar spent on a Chinese made product, only 3 cents ends up back in China?

It's funny how Katie Couric is relied upon more for macro-economic insight than professors and professionals who have studied the issue for their whole life.

It's funny how you think I watch Katie Couric. I don't. Not even once, so you're wrong there. Since you have the vast economic insight, explain to me how the few dollars given back to citizens will lead to a sustained economic growth period. "Sustained" being an operative word there.

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