Reacting to mounting concerns that the U.S. economy is sliding into recession, House and Senate leaders announced on February 7 that they had approved by large bipartisan majorities a $152 billion fiscal stimulus package that will provide tax rebates to most Americans and enhanced tax breaks for small businesses.
Designed to boost the economy at a time when the subprime mortgage lending crisis and falling house prices appear to be putting the brakes on growth, the Economic Stimulus Act of 2008 passed the Senate by a vote of 81 to 16, and the House by a vote of 380 to 34. Saying the measure provides “a booster shot for our economy,” President George W. Bush signed the bill on February 13.
Originally unveiled on January 24 by President Bush and House leaders, the law allocates more than $100 billion to providing tax rebate checks to individuals and families. The IRS has said it will start sending out checks in May of this year to all qualifying taxpayers who filed a 2007 return. A version of the bill first approved by the House was modified slightly in the Senate to extend rebate checks to low-income seniors and to disabled veterans, while adding safeguards to ensure that no checks would go out to illegal immigrants.
Under the new law, individual taxpayers will be eligible to receive rebates of up to $600, and married couples will receive checks for up to $1,200, based on income tax paid in 2007. These rebates reflect the agreement that, for 2008, the 10% marginal rate will fall to 0% for the first $6,000 in adjusted gross income (AGI) for single filers, or $12,000 in AGI for married filers.
The stimulus package also puts some extra cash in the pockets of many Americans who earn too little to owe federal income taxes: Americans with at least $3,000 of earned income—defined as the sum of earned income, Social Security benefits, and veterans’ disability payments—will receive a minimum of $300 per individual and $600 per married couple. All taxpayers eligible for this relief will also receive an extra $300 per child.
These rebates are, however, phased out for taxpayers with AGIs of more than $75,000 for single filers or $150,000 for married couples filing jointly. Above these income levels, rebates will be reduced by $50 for each additional $1,000 in income.
A further $50 billion of the package is devoted to offering incentives for business investment, including a 50% bonus deduction on most types of capital investments in the year the equipment is placed in service. The package also features an expansion of the Section 179 deduction, which allows small business owners to write off expenses immediately instead of depreciating capital expenditures over many years. A temporary change in the tax code will allow small businesses that invest in new or used equipment in 2008 to fully expense $250,000 in qualifying property purchases, up from $125,000 in 2007, with an annual investment cap set at $800,000.
President Bush said his administration struck a deal on the package following intense negotiations with House Speaker Nancy Pelosi (D-CA) and House Minority Leader John Boehner (R-OH). “This package has the right set of policies and is the right size,” the President said. “The incentives in this package will lead to higher consumer spending and increased business investment this year. Importantly, this package recognized that lower taxes is a powerful and efficient way to help consumers and businesses.”
Commenting on the bonus depreciation and Section 179 expensing enhancements contained in the stimulus package, Rep. Boehner said these provisions “will give employers—particularly small businesses—greater incentive to invest and create jobs for more Americans searching for work.”
After conceding that the economic growth package “is not perfect,” Rep. Boehner said, “But the beauty of it is that it is simple, neat, and it quickly puts money into the hands of working families, while also helping small business owners grow and create jobs. These are two of the most critical components for the long-term economic security of the country. Many Americans correctly believe that Washington is broken. This agreement is one small step toward fixing it.”o;