Prepare to keep waiting.
A flurry of dismal news including a somber May jobs report and a less than encouraging report from Federal Reserve Chairman Ben Bernanke sent stocks and spirits lower midweek. Traditionally, that combination of factors leads to talk of a federal stimulus to give the economy a bit of a shot in the arm.
In early 2008, with the country veering towards a recession (even though nobody wanted to call it that at the time), President Bush signed the Economic Stimulus Act of 2008. Under the law, low-to- middle class taxpayers were entitled to receive a stimulus check of up to $600 per qualifying adult and $300 per qualifying child; checks were mailed out in the middle of 2008. Taxpayers who did not receive a check in the mail but were otherwise entitled to a check could have the stimulus applied towards their taxes due in the form of the Rebate Recovery Credit.
The idea was to get cash into circulation by giving it to those who were most likely to spend it. All of that spending was supposed to buoy retailers and create jobs thus getting even more money into the economy. Cake, right?
Only it didn’t happen that way. Just a few months later, the effect of the stimulus package appeared to be to push the federal deficit to a then all high of $165.9 billion. The continued slowdown prompted our guy, Federal Reserve Chairman Ben Bernanke to advise Congressional leaders that “consideration of a fiscal package by the Congress at this juncture seems appropriate.” And despite the fact that Republican leaders were apprehensive about a second stimulus plan, preferring additional tax breaks, then President Bush was warming to the idea.
Despite a number of rumors that a second check would be mailed out in 2008, it didn’t happen. Then President Elect Obama had increased speculation about a second check when he stated days after his election:
The one thing I can say with certainty is that we are going to need to see a stimulus package passed either before or after inauguration.
Obama took care to say “stimulus package” and not “stimulus check.” And that’s exactly what happened. A few months later, the American Recovery and Reinvestment Act of 2009 (sometimes called “ARRA”) was pushed through Congress. ARRA provided for a one time payment of up to $250 for retirees and disabled persons, referred to as the Economic Recovery Payment (ERP). Eligible recipients received a check for $250 directly from the Social Security Administration, Veterans Administration or the Railroad Retirement Board, not from the IRS.
In an effort to get cash to the rest of the country, ARRA offered taxpayers a tax break called the Making Work Pay Tax Credit. Rather than send checks out, the federal income tax tables were adjusted so that taxpayers who were paid a wage or salary by an employer saw a little more in their paychecks in 2009 and 2010. Taxpayers, including the self-employed, who were eligible for the credit but did not have an adjustment in their withholding could have the credit refunded at tax time. The credit provided up to $400 per individual worker and $800 per working married couple.
The Making Work Pay Credit expired at the end of 2010. It was replaced by “payroll tax holiday” for 2011. On the employer side, for this year, payroll tax contributions for federal purposes remain the same. On the employee side, payroll tax contributions for federal purposes were reduced by 2%: instead of paying in at 6.2% for Social Security taxes (up to $106,800), contributions for 2011 are 4.2% for Social Security taxes (up to $106,800). Contributions for Medicare remain the same and there is no cap (all wages are taxable for Medicare tax purposes). The net result is that most wage earners should be seeing more money in their paychecks this year.
Additionally, the so-called Bush tax cuts were extended through 2011 ensuring that most families will pay tax at a lower rate for at least one more year.
So good, right? Not exactly. There’s a problem. Tax credits, tax cuts and withholding adjustments are “stealth stimulus packages.” They’re not as in your face as a stimulus check. And in an election year, that can be worrisome. And so the chatter about an additional stimulus check has begun, albeit quietly.
To be clear, the government has not announced plans to issue a stimulus check for this year (2011). There are a host of complications that would make such an idea a hard sell in Congress. But there is mounting pressure to do something to stave off a further slowdown – at least publicly – and the idea of a stimulus check has been floated as a quick and easy fix. A Republican Congress, however, is hesitant to increase spending despite calls to make more cash available to taxpayers.
So you tell me… If it were up to you, would there be another federal stimulus check? Or do you have a better idea?