Even though many politicians – including President Bush – are still reticent to use the “R” word (recession), economic pundits, including those in the Bush administration are using it. Ed Lazear, President Bush’s chief economic adviser, has been quoted as saying that “parts of the country” are in a recession.
With the threat (or reality, depending on where you land) of a recession looming, there is now a rush to consider a second stimulus package. Federal Reserve Chairman Ben Bernanke has told Congressional leaders that “consideration of a fiscal package by the Congress at this juncture seems appropriate.” He did not, however, use the “R” word, instead referring economy as in a “protracted slowdown.” His suggestions for a stimulus package include direct lending from the federal government to states (a measure that Governor Schwarzenegger of California also supports), consumers and businesses; he has also backed the idea of additional tax credits.
As Bernanke made his announcement, it seems that even President Bush is warming to the idea of a second stimulus package. Just two months after the President objected to the idea of a second stimulus package, the White House has signaled that President Bush would now be “open” to the idea of an additional package. The administration has not agreed to any specific plan and has not indicated which details he would approve.
The Democrats have floated several plans but have not reached a conclusion as to the best overall package. One version included a small rebate check but was not expected to pass and has, in recent weeks largely been ignored. The most recent plan proposed by House Speaker Pelosi focused on extending jobless benefits and increasing infrastructure spending but does not include rebate checks.
The Republicans have been much more apprehensive about a second stimulus plan. Most in the GOP are not on board with the Democratic proposals. Instead, the GOP wants to focus on additional tax breaks including a temporary elimination of capital gains tax on stocks. They have also suggested offering capital gains exclusions for taxpayers with multiple residences in an effort to reduce foreclosures by those who own more than one home.
With such disparate proposals on board, it’s highly unlikely that a resolution will be reached before the end of the year. Democrats have indicated that they are hopeful that if Obama wins the White House, they may have leverage to pass legislation within two weeks of the election – Congress is off session until after the elections. However, the reality is that no matter who wins, Bush will remain in the White House through mid-January. His approval would be needed for any stimulus package as the threat of veto would remain so a compromise will be necessary.
So, there are lots of reports being circulated about what could happen. But to be clear, despite rumors to the contrary, no second stimulus package has been approved and no additional stimulus checks are being mailed as a result. Keep checking back for details as they become available.
I indicated earlier that I didn’t think that a second economic stimulus package would be considered until after the elections – and it looks like that is, in fact, the case. I’m actually still confident that any stimulus package which includes “tax rebates” would not result in checks being mailed out until the new year.
Nonetheless, Democratic leaders have indicated that they will pursue a second economic stimulus package as soon as two weeks after the elections. The package is said to include extended jobless benefits, money for food stamps and maybe – just maybe – another tax rebate. The cost of the additional package is estimated to be $150 billion.
But talking is just that – talking. The real challenge is that even if the Democrats won the White House, any attempts at pushing new legislation next week means negotiations with the current President; most agree that President Bush, who remains in office through January 20, 2009, is not likely to agree on the House version of the bill as it is contemplated today.
House Speaker Nancy Pelosi believes that some stimulus is necessary. Senate Majority Leader Harry Reid agreed, saying:
“recent developments only reinforce the need for additional action to reinvigorate the economy.”
The House had passed a $61 billion economic stimulus package just before the election break but the package was never really intended to become law; the GOP Senate had already indicated opposition to the bill. That package included jobless benefits, Medicaid assistance and improvements to the nation’s infrastructure. There were no rebate checks included in that bill.
With respect to a new stimulus package, Republicans are said to be “skeptical of a second stimulus” but are not necessarily opposed. The main concern is the proposed cost of the plan, considering the state of the economy. The nonpartisan Congressional Budget Office has reported that the federal government will run a near-record deficit of $407 billion this year and next year’s deficit could reach a record $438 billion. This does not include expenditures related to the bailout.
The Democrats in the Senate appear to echo the Republicans’ concern on some level. When speaking about a second stimulus package, Sen. Charles Schumer indicated support for a package that could range from $50 billion to $75 billion. A package of that size would almost certainly not include additional rebate checks.
So even if the House gets its way, don’t get too excited: all indications are that rebate checks would be limited. The last stimulus package included $100 billion of rebate checks and still left many taxpayers out completely. Even the “best case” scenarios being presented hint that a second round of rebate checks would total less than $65 billion, meaning that even more taxpayers would be left out of the second package.
It’s that last part that the Democrats have to keep in mind. The last round of checks left many angered that benefits were not extended to all taxpayers; to then extend a second round of benefits to fewer taxpayers (approximately 1/3 less) may cause widespread dissension.
What do you think? Good idea or not?
Taxpayer asks:
I work for an accounting firm and my boss mentioned she had heard on TV (gotta love the media) that because the first round of stimulus checks didn’t stimulate the economy as they thought ( I loved your – who really did profit from the stimulus checks), that the IRS was considering another round of “rebates”. Have your heard this?
Taxgirl says:
This is a popular question!
Despite the fact that one of my readers wrote in to tell me how very wrong I am on this one, I’m standing by the idea that I don’t think there will be a second round of checks any time soon. It makes a nice argument for the politicians, but I don’t think it’s economically sensible.
I have heard talk of what’s being called a “second economic stimulus package” but it focuses on providing funding for government programs (like state infrastructure) and not individual checks for taxpayers.
Sorry!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
There has been a lot of talk about which presidential candidate has the best tax plan for “middle class” America. It’s an interesting question because I’m not sure that anyone can actually define “middle class” anymore – my readers seem to feel that it’s all over the place.
Middle class – as it’s widely defined – is generally defined as those families who are in the middle of income brackets. That can be confusing. Based on 2005 Census Bureau reports, 40% of Americans earned less than $36,000 a year (the bottom 20% earn less than $19,000). The next 40% – the so-called middle class – reported betwen $36,000 and $91,705 of earnings. The top 20% of earners, making $91,705 or more, earned 50% of the income reported in the US.
[Kelly's geeky note: From a math perspective, that's pretty interesting: while the richest 20% took in nearly 50% of income, the middle class (representing 40% of Americans) earned a fairly representative proportion of total income (37.5%).]
So there you have it, statistically you are middle class if you earn between $36,000 and $91,705 (adjusted for inflation since 2005) per year. Easy, right?
Not so fast.
There are a lot of factors that pure numbers don’t take into consideration including the size of your family and the cost of living in your geographical location. Lots of folks who make more than $75,000 per year may live comfortably in some areas of the world – but that kind of money won’t take you very far in areas like New York City or San Francisco where housing costs alone can easily reach $1 million for relatively modest homes.
The reality is that almost everyone thinks that they’re middle class, though of course, you can’t be. And realistically, you don’t want to be right now. Here’s why.
[click to continue…]
