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Tax rebate cash may be on the way

A tentative deal for tax rebates zooms through Washington.

By Times staff and wire reports
Published January 25, 2008

WASHINGTON -- With unusual speed and cooperation, Congress and the White House forged a tentative deal Thursday to begin giving tax rebates of $600 to $1,200 to most tax filers this spring, hoping that they will spend the money just as quickly and jolt the ailing economy.

Rebates would be higher for families with children, and they phase out gradually for individuals whose adjusted gross income exceeds $75,000 and for couples with incomes above $150,000.

The one-time rebates are at the center of a hard-won agreement to pump about $150-billion into the economy this year and perhaps stave off a recession.

Is it a done deal?

The House is expected to approve the package on Feb. 6, but the Senate still has a chance to weigh in. Without the extended unemployment benefits or increased food stamps that Democrats had sought, it is unclear how the plan will be received there. The leaders in both chambers have set a goal of Feb. 15 to send a measure to the White House for the president's signature.

How would rebates improve the economy?

At the center of the plan is an effort to spur consumers, whose spending makes up 70 percent of the American economy. The plan leans heavily on cash payments for all but the wealthiest Americans, assuming that money put in pockets will swiftly find its way into cash registers, generating jobs at restaurants, retail outlets and banks and on the factory floor. Two-thirds of the money in rebate checks sent to spark the economy after the Sept. 11, 2001, attacks was spent within six months.

But will the cash flow quickly enough to help the economy over the next several months?

The first of the 117-million checks wouldn't be in the mail until late May, and some wouldn't arrive until early August. And the shot in the arm for the economy does not directly address the problems of the sagging housing market, towering consumer debt, teetering mortgages and capital-short banks.

What do economists think of the plan's effectiveness?

Few economists said they thought the stimulus plan alone would be sufficient to keep the economy clear of a recession. Yet many portrayed the package as a significant psychological boost for jittery markets around the world, a sign that the Washington overseers of the American economy are seriously engaged in finding a fix. "It will provide some confidence," said Lawrence Summers, the Treasury secretary in the Clinton administration.

How did the markets and the business sector respond to Thursday's news?

Stock and commodity markets were heartened by the package. Despite a 2.2 percent drop in the sales of existing U.S. homes announced Thursday, the stock market rose. And despite an increase in crude oil and gasoline inventories, crude oil prices rose more than $2 to $89.41 a barrel on expectations that a stronger economy would boost consumption of petroleum products.

Many business people had hoped for other provisions that they say would have provided a longer term boost to the economy.

Renewable energy advocates had sought an extension of tax credits for wind and solar; those credits expire at the end of this year and they say that new projects could soon start to slow down because of uncertainty about the fate of the credits. "It is all incredibly short-term," said Jonathan Rose, a New York real estate developer.

Is the bipartisan deal a harbinger of more cooperation in Washington?

Don't count on it. The agreement represents the first time since divided government returned to Washington a year ago that the two sides of Pennsylvania Avenue came together on a major initiative without any bloodletting. Both sides saw it in their self interest as well as the national interest, but experts cautioned that it may not be easy to replicate. "You have a perfect storm here of short-term challenges to do something that you probably won't get on other issues," said Steve Elmendorf, who was chief of staff to former House Minority Leader Richard Gephardt, D-Mo.

Information from the New York Times, Washington Post and Associated Press was used in this report.

Just where do you fit in? How Americans in different financial situations would fare under the proposed rebate plan.

• An individual with $2,500 in earned income in 2007: Disqualified because income fell below the $3,000 threshold. No rebate.
• A married couple with no children, with adjusted gross income of $100,000 in 2007: Would qualify for the full $1,200 for couples. A $1,200 rebate.
• A worker with one child, who earned $9,000 and owed no taxes in 2007: Would qualify for the $300 rebate available to individuals who pay no taxes but earned at least $3,000, plus an additional $300 for the child. A $600 rebate.
• A couple with income of $145,000 in 2007, with three children: Would qualify for the full $1,200 for couples, plus $300 for each child. A $2,100 rebate.
• A couple with income of $160,000 in 2007 with two children: Would qualify for a partial rebate, reduced by $50 for every $1,000 in income above the $150,000 threshold. An $1,800 rebate -- $1,200 for the couple plus $300 per child -- would go down by $500 for this family. A $1,300 rebate.
• A couple with income of $200,000 and four children: Disqualified because their income exceeded $174,000, the phase-out limit. No rebate.
• An individual with adjusted gross income of $23,000 and no dependents: $600 rebate.
• A couple with adjusted gross income of $184,000 and two children: $100 rebate.

Associated Press

[Last modified January 25, 2008, 01:00:41]