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Who Gets a Rebate?


Stimulus package won't target all consumers.

President Bush signed the fiscal stimulus package yesterday, but before consumers begin to maniacally rub their hands together and rush out to the Apple store to buy another iPod, let's examine who actually qualifies for a rebate.

The size of the stimulus will be around 1% of 2008 GDP -- or an estimated $152 billion -- and will undertake to boost the economy by:

  • Sending rebate checks to low and middle class taxpayers
  • Providing tax incentives for businesses to expand operations in 2008
  • Expanding the reach of government sponsored mortgage companies

Rebate Checks

Individuals with an income less than $75,000 will receive $600 and couples earning less than $150,000 will receive $1200. Families in this group qualify for an additional $300 per child will. There is no cap on the number of children. Those on Social Security or not earning enough to pay taxes will receive a straight $300 check. There are no additional forms to fill out; a simple tax filing is all that's required to qualify.

For every dollar earned above $75,000 the rebate is reduced by 5%. In other words, if you make $100,000 per year, your rebate is decreased by 5% of $25,000, or $1250. The government has generously decided not to collect this difference. The bottom line here, anyone making over $87,000 will not receive a refund.

Households earning more than $150,000 could see their child-based rebates wiped out as well. A family making $186,000 with two children will receive nothing. Now may be a good time to ask your boss for that decrease in salary you've always wanted.

Business Incentives

To spur spending and expand hiring, the tax code will be revised temporarily to allow bigger deductions on capital expenditures made in 2008. This means companies that buy software, equipment or other tangible property will bear a lower tax burden at year end. The White House estimates that approximately one third or $50 billion of the stimulus will be realized through these tax benefits.

Mortgage Market

As reported after the announcement of the stimulus, increasing the loan limits for Fannie Mae (FNM) and Freddie Mac (FRE) may make it easier for homeowners to refinance or sell homes in high value areas such as California, Florida and New York. The plan also calls for more involvement of the Federal Housing Administration, or FHA, which is being given more leeway to help subprime borrowers handle expensive loans.

Many economists agree the stimulus will help shield the economy from a deep recession in the near term, but its real effects are being hotly contested. One study showed only one quarter of Americans plan to actually spend their rebate checks, while the rest claim they will save the money or use it to pay down debt. But Americans have yet to prove their ability to save or pay down debt. Its unclear if they will start now.

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