[Update Jan 22 2008] The Senate and the House are currently debating the economic stimulus package and included rebates. The House version of Obama's "Making Work Pay" tax credit would give workers making $75,000 per year or less the full $500 tax credit; couples with incomes up to $150,000 a year would receive a $1,000 credit. The plan would also provide a temporary $2,500 tax credit to help pay for college. It would boost the earned income tax credit for low-income workers and permit them to receive the entire $1,000 per child tax credit as a refund in 2009-10 if they make as little as $8,500 a year and wouldn't otherwise qualify. As expected, Republicans are fighting the extra spending on the Stimulus and TARP packages, but they should clear both get congressional approval by next month.

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In a recent poll on this site, 80% of respondents said that the next economic stimulus check would be mailed out by March 2009. Unfortunately they were wrong on two counts. Firstly, there is no second economic stimulus check. Rather the Obama administration plans to hand out tax rebates to approximately 150 million workers making less than $200,000. The tax breaks would be worth $500 for individuals and $1,000 for couples. Secondly, any relief for consumers won’t be available till March/April at the earliest as the new President tries to get his near $800 Billion stimulus package (over 2 years) through congress.

President Obama’s advisers said that they were searching for a way to get that credit into Americans’ pockets quickly to help stimulate spending, but would not duplicate the rebate checks sent last year. Instead the administration plans to include about $300 billion in tax cuts, or 40% of the total economic recovery program (stimulus package), for workers and businesses. The tax cuts would be implemented by altering tax-withholding rules, so that workers would see an immediate increase in their take-home pay.

Senior Democrat officials have acknowledged that the economic package would not be ready for President Obama’s signature immediately after his inauguration on Jan. 20, as they once hoped. Instead it will be heavily scrutinized by house and senate members to ensure bipartisan support of the package. Proponents of more government spending (via fiscal policies) have said that additional delays will send the economy into a depression by mid-year if no action is taken as soon as the new President is sworn in, and want the stimulus package to be even larger.

Republicans, who have generally opposed further stimulus packages and rebate checks, favor tax relief and tax credits as part of the economic measure and said Congress should consider reducing the 25 percent income tax rate to 15 percent. The Obama administration has also pulled back on its campaign rhetoric to increase taxes for the rich by not trying to repeal Bush’s tax cuts for the wealthiest Americans sooner (they are due to expire in 2010).

Overall, I think the Obama administration is right in its efforts to focus on job creation and stimulating the economy over the long term. I also agree that issuing stimulus or rebate checks (even if there were near $5000 as initially rumoured) would have done little in the medium to long term to revive economic growth. It would have been a populist, short term impact, move which I am glad the Obama administration has decided not to pursue. Tax cuts are a better solution, and will also help win support from congressional Republicans to ensure the ultra-large stimulus package is passed sooner rather than later.


This from the website savingstoinvest.com

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