Economic Stimulus Tax Rebate

Agreement between White House and House leaders

By Kaye A. Thomas
Updated January 26, 2008

Large family? Large rebate.

Intense discussions between Treasury Secretary Henry Paulson, House Speaker Nancy Pelosi and House Minority Leader John Boehner have produced agreement on an economic stimulus package. Full details are not yet available, and Senate leaders have yet to sign off on the deal, so it's possible the existing outline will change. Significant concessions from both sides mean there may be complaints from both Democrats and Republicans — but also mean both sides can claim at least partial victory. For now at least it appears likely that momentum will carry this deal, or something very similar, to completion.

The centerpiece of the proposal is a tax rebate of up to $600 for an individual taxpayer or $1,200 for a couple filing jointly, with a bonus of $300 for each child. The relief would be phased out when adjusted gross income exceeds $75,000 for individuals or $150,000 for couples.

Rebate, prebate

As anticipated in our earlier article on the stimulus package discussions, the main benefit is being described as an advance reduction of 2008 income tax. Taxpayers will receive checks based on information in their 2007 income tax returns but those who don't receive checks, or receive smaller amounts than they should based on 2008 income, will likely be able to claim the benefit on their 2008 income tax returns. Those receiving larger checks than their 2008 income would justify will be allowed to keep the money.

Child bonus

According to a fact sheet published by Boehner, there is no limit on the "bonus" of $300 per child. In an example, a couple with five children and income below the level where the rebate is phased out receive a total of $2,700: the regular amount of $1,200 per couple increased by a $1,500 child bonus.

Low-income taxpayers

Potential rebate Republicans wanted the benefit to go only to individuals who have enough income to pay income tax. Democrats pointed out that lower-income individuals pay social security tax and also are likely to spend the money more rapidly, providing greater economic stimulus. In a compromise, a flat amount of $300 will be provided to individuals with earned income of at least $3,000 in 2007. (It appears likely that earned income will mean wages or other income subject to social security tax or self-employment tax, so other types of income, such as interest and dividends, won't count.) Because many low-income individuals are not required to file income tax returns, Social Security records may be used to identify recipients.

High-income taxpayers

Outlines of the agreement indicate that the benefit will be "phased out" for individuals with income above $75,000 or couples with income above $150,000. CCH reports obtaining an unofficial summary that indicates the benefit would be reduced 5% for each $1,000 of income above these levels.

Timing

The legislation may be finalized within a month, but the IRS will likely begin mailing checks in May at the earliest. This estimate brought a complaint from Congressional Budget Office director Peter Orszag, who was quoted in the Wall Street Journal: "It is remarkable that the world's leading economic power can't get checks out the door faster than that."

Comment: It would be even more remarkable if the IRS maintained the excess capacity in personnel and other infrastructure to gear up a program of this magnitude during a period when it is processing over 100 million income tax returns. Imagine the outcry if the IRS kept extra people and computers available on standby for projects of this nature.

A reader comments

Here's a waggish comment from our message board, suggesting the best way to get people to spend the tax rebate:

Perhaps the checks should go out with a letter asking the recipients to save the money instead of spending it. In the past, admonitions to save simply resulted in more spending, so why mess with what works?