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237 IRET Congressional Advisory 1 (2008)

handle is hein.taxfoundation/iretcgadv0234 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. February 6, 2008 Advisory No. 237 SENATE STIMULUS PACKAGE The Senate is debating changes in the individual and business portions of the Administration/House stimulus package. The House investment incentive is worthwhile, and is better than the Senate version. Nothing else in either version of the package would do much economic good. It would be better to scrap the stimulus package and extend the 2003 tax cuts. That would do more to boost investment and employment, both in the short run and in the longer run, than the stimulus plans now being proposed. Individual rebates. The Administration wants to send rebate checks to many middle- and lower-income taxpayers, arguing that the checks would stimulate consumption spending and thereby strengthen the economy. The proposal has been passed by the House of Representatives, and is being considered by the Senate. The Administration/House version would base the initial rebate amount on the greater of: 2007 tax liability up to $600 for a single filer or $1,200 for a couple, or (a sort of minimum) $300 for a single filer and $600 for a couple provided they had earned (labor) income of at least $3,000 in 2007. These amounts are increased by $300 for each child under 17. The benefits would be phased out for people with adjusted gross income over $75,000 (single) or $150,000 (married couple). The checks are meant to be a rebate against 2008 taxes, but the Treasury does not yet know people's 2008 tax status, so the initial checks will be sent out based on 2007 tax liabilities and labor income eligibility. When taxpayers file their 2008 tax returns, they will be required to adjust their rebate to reflect their 2008 income tax situation. A few might have to return a portion of the check, while some may get a credit against the 2008 tax owed. The Senate Finance Committee version would put a spin on the plan. It would give flat rebates of $500 (single) and $1,000 (married) for people with at least $1 in 2007 tax liability, or if they have earned income (labor income) of at least $3,000. The Senate would extend the rebates to many who would not qualify for relief under the House plan by allowing lower-income persons with non-taxable Social Security and veterans' benefits to include them toward meeting the $3,000 labor income requirement. The Senate version has a higher phase-out, starting at $150,000 (single) and $300,000 (married). The Senate Finance Committee version would extend unemployment benefits for an additional three months nationwide and six months in high unemployment states. Not included, but favored by some Members, would be an increase in home heating assistance for the poor (LIHEAP - Low Income Home Energy Assistance Program). Investment incentives. Two expensing provisions have been offered to boost investment spending. The House version of the bill would allow businesses to expense 50% of the cost of equipment in the first year, reporting the rest of the cost under regular depreciation rules. To be eligible, the equipment would have to be ordered and placed in service by the end of 2008 (except for certain longer-lived assets, which must be in service a~em kI. k * * 66~ 8 ~6I

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