What Exactly Is a Tax Rebate? And More Importantly, What Does It Mean For Me?

The exact nature of the so-called “tax rebate” has been tossed about for weeks now. It’s a confusing issue because the last set of checks mailed to taxpayers in the name of stimulating the economy, which happened in 2001, were credits against tax to be paid. In other words, when tax returns were filed the following year (2002), adjustments had to be made.

In the final version of the 2008 bill, approved by the House but not the Senate, the tax rebates will not act as tax credits. They are simply outright payments to taxpayers, not offsets. This means that money is coming out of the Treasury which will not be replaced - a fact that has fiscal conservatives and the nonpartisan Congressional Budget Office worried. The estimated effect on the federal deficit is $250 billion, exclusive of additional sending to “jump start” the economy.

Under the plan, those with income of at least $3,000 last year but who did not make enough to pay federal taxes would receive a $300 check ($600 for a married couple filing jointly). Those taxpayers who would pay at least $600 in income tax for 2007 would receive a check for $600 ($1,200 for a married couple filing jointly). The amounts are less than initially anticipated, previous versions of the plan suggested rebates between $800 and $1600.

Rebate checks would be increased by $300 for each dependent child, without limit - also a change from the previous plan which sought to limit the rebate to four dependent children. So, the more children, the merrier, it seems.

Payments would be phased out for individuals who earn more than $75,000 and joint filers who earn more than $150,000.

The plan would allow businesses to immediately write off 50% of purchases of plants and other capital equipment and permit small businesses to write off additional purchases of equipment. The business tax cuts cost about $50 billion, a smaller amount than originally contemplated. The package also raises the limits on FHA loans and home mortgages that Fannie Mae and Freddie Mac can purchase to as high as $725,000 in high-cost areas, more than twice the current limit for Fannie Mae.

What was left out of the plan? Food stamp and unemployment extensions, pushed for by the Democrats, and a provision that would allow “struggling businesses” (whatever that means) to recoup taxes paid, touted by the Republicans.

The Dow seemed un-phased by the announcement of an accord. Unlike last week when it dipped following Bush’s announcement, the Dow finished Thursday up more than 100 points.

Apparently, my feelings on this plan make me a fiscal conservative, a title that will shock most of my friends and family. While I agree that something needs to be done, draining the Treasury of funds with no plan to replace the money is not high on my list of suggestions. And making the tax rebates most favorable to, c’mon, let’s face it, lower to middle class taxpayers with lots of children doesn’t seem fair or smart - even though I’ll admit that as a mother of three, it will put money in my pocket.

I’m not alone. While the House believes that checks can be cut as early as May, there is still work to be done in the Senate. And in an election year, there could be a fight between Democrats who hope to expand the package and Republicans who wish to limit it.

I am interested to hear your thoughts. Is this a good plan? Do you care? Do you just want your money? Are you left out of the grab for money? Chime in!

Technorati Tags:
Congress, economic stimulus, economy, income tax, recession, tax, tax rebate