Answers To Questions On Economic Stimulus

President Barack Obama this week signed into law the $790 billion economic stimulus plan. The plan includes both spending programs and tax credits for millions of Americans. Many listeners had questions about the plan and NPR correspondents answers some of them.

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ROBERT SIEGEL, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

Earlier this week, we asked for your questions about the economic stimulus plan; and by the looks of our inbox, there's a lot of confusion out there. We can't really get to all of your questions, sorry about that. But we are going to try to make a dent in that mountain of mail.

And to help me out are three of our NPR correspondents: Adam Davidson and John Ydstie, who both cover the economy, and Richard Harris from the Science Desk.

Thanks to all three of you for being here.

JOHN YDSTIE: You're welcome.

ADAM DAVIDSON: Sure.

RICHARD HARRIS: Thank you.

NORRIS: I want to start with questions about the $400 tax credit, the one that's going to put an extra $8 to $13 a week into some people's paychecks.

Here's Lisa Randall(ph) of Saunderstown, Rhode Island.

Ms. LISA RANDALL (Listener): My husband and I both work freelance. I'm a writer, and he's a decorative painter. As such, we pay for our own family health insurance coverage, do not have taxes taken out of weekly earnings and do not benefit from any employer-based retirement savings plans. I'm curious how the recently signed stimulus bill will benefit us.

NORRIS: John Ydstie, I'm going to begin with you. For people, like Lisa Randall, who are self-employed, are they going to benefit from that tax credit?

YDSTIE: Well, unless these folks make lots of money, they would benefit from the Making Work Pay tax benefit. But because they're self-employed, they wouldn't get the benefit in a biweekly paycheck as most employees will. But presuming they make enough money to be required to file a quarterly estimate of their taxes with the IRS and send in the estimated amount owed, they would be able to deduct a tax credit from the quarterly payment.

As a couple, they would qualify for $800 total each year, depending on their income. Now, this benefit phases out between $150,000 and $190,000 for couples.

NORRIS: John, we also had a similar question from a retiree, someone who's no longer getting a paycheck. What happens in that case?

YDSTIE: Well, it's a little bit different. If he's not working, he's not going to be eligible for the Making Work Pay tax credit. But he's not left out completely. The stimulus plan provides $250 in a one-time payment to all Social Security recipients. And also people who received veterans benefits, railroad retirement benefits and certain federal workers who aren't eligible for Social Security.

Now, let's say you work a little and get Social Security, then your tax benefit under the Making Work Pay tax cut would be reduced by this $250 amount you get for being on Social Security.

NORRIS: Okay. I want to take the next question, which is about energy efficiency; something that President Obama highlighted when he signed that stimulus bill in Denver this week.

And, in fact, our question comes from someone in Denver, from listener Ellie Webber(ph).

Ms. ELLIE WEBBER (Listener): My husband and I would like to add some energy saving improvements to our house, mainly increasing our attic insulation and replacing our 30-year-old aluminum windows. What kinds of provisions, if any, are included to help homeowners make these kinds of green improvements to their homes?

NORRIS: Richard Harris, you're from the Science Desk, so I'm going to turn to you in this case.

RICHARD HARRIS: Okay.

NORRIS: Is there money out there for making your home more energy efficient? And how are people supposed to get that money if it's there?

HARRIS: Yes, the money is indeed there. And there are a couple of ways to get it. If this couple chooses to buy insulation in windows to improve the energy efficiency of their home, not just for soundproofing or whatever, they can get a tax credit of 30 percent of the cost of the materials only - not installation, just materials. And they won't get cash in hand, though, for that.

But what happens is when they file their taxes in April of 2010, they'll be able to reduce their taxes by up to $1,500. And that would be $1,500 for these kinds of improvements this year and next year, so there's a cap for that.

Now, there are different rules for high-efficiency heaters and air conditioners and for solar installations. This gets very, very complicated very quickly. And suffice it to say, really, what you should do to find out more of the details is go to energystar.gov Web site, and click on the link that says tax credits. And a lot of this is laid out in quite a bit of detail there. And it's important to look because there's a lot of fine print with this, so you have to be careful you're doing it right to make sure you get the tax credits.

There's one other possibility also for this couple, which is that this stimulus package sends billions of dollars to state and local governments as well for energy efficiency programs. And it's up to those localities to decide whether they want to actually distribute it to people who are doing home improvements or if they want to use it for other programs for energy efficiency.

So, it also would pay to go to your city, county and state Web sites and see -probably too early to know the answer right now 'cause they're probably just figuring out how to use that money, but that's another possible avenue for them too.

NORRIS: So the savings are potentially there, but you got to do your homework.

HARRIS: Exactly.

NORRIS: Now, here's a broader question about the stimulus plan. It comes from Chris Campbell(ph) of Philadelphia.

Mr. CHRIS CAMPBELL (Listener): I'd just like to know where exactly the money is coming from, which is going to be used to fund the stimulus package?

NORRIS: Simple question, Adam. This is a $787-billion package. Where is the money coming from? Or is it really that simple?

ADAM DAVIDSON: Well, that is that simple. It comes from us, the taxpayers. The government has basically - I mean, there's a few smaller other options - but basically two options to fund spending. One is taxes now and the other is taxes in the future, by taking on debt now and then getting us to pay for it later. They're doing the latter. The stimulus wouldn't be a stimulus if they simply were moving money around now.

The theory or the hope for those who support the stimulus is that this stimulus will generate a lot more economic activity that could lead to a lot more tax revenue. it'll make all of us wealthier, and therefore it will be a bit easier for us to pay this off. It's not a free ride. We're not going to pay for the whole stimulus through the extra taxes encouraged by the stimulus.

The people who are skeptics of the stimulus say that that's not going to happen. All this is is a drain on our debt load for the foreseeable future. This is a pretty sizeable increase in our debt load, a little less than 10 percent, which we will have to pay off eventually. And depending on how long it takes us to pay it off, we'll know how difficult a burden that is.

NORRIS: Now, in terms of legislation, the stimulus package was massive, over a thousand pages long. And a lot of people are wondering how various parts of this bill are going to affect them.

One listener, Jill Henry(ph) of Indianapolis is thinking about buying a car, and she had this question.

Ms. JILL HENRY (Listener): I am wondering whether tax deduction for sales tax on cars applies only to brand-new cars or to used cars purchase, as well? Also, is it limited to the 2009 calendar year?

NORRIS: Okay, John, two questions there.

YDSTIE: All right. Well, it's only for new cars. You can't buy a used car with it. And it is limited to purchases in a specific period. And that period is one year after the bill's enactment, which would have been February 17th, I guess, when President Obama signed it.

Also interesting, you can spend up to $49,500 on a car, or actually cars, it turns out. You could buy as many cars or light trucks or motorcycles, as would total up to that amount and still get this deduction.

The problem is it's not a big deduction. Let's take a $20,000 car on which you might have paid five percent sales tax, which would equal about $1000. You could deduct that $1000 from your income. But if you're in the 15 percent bracket, which most people are, you'd only be saving $150. So it's probably not enough to get you to go out and buy a car.

NORRIS: All right. I want to move, I want to move now to Albuquerque, New Mexico. Listener Thomas Ormsby(ph) has this question.

Mr. THOMAS ORMSBY (Albuquerque, New Mexico): I understand that a certain amount of money in the stimulus package is to be set aside for high-speed rail projects. Can you provide some detail as to where these rail projects might be built?

NORRIS: John, any idea where we might see these high-speed rail projects?

YDSTIE: Well, the Federal Railroad Administration does have a map designating high-speed rail corridors. It includes a big chunk of the Eastern Seaboard, an area of the Midwest that radiates out of Chicago, southern California, some areas in Texas and along the Gulf Coast, also in the Northwest.

Transportation Secretary Ray LaHood is supposed to come up with a plan for these funds. I mean, it's a huge amount of money, $8 billion, far surpassing anything contemplated in the U.S. for high-speed rail.

But there are a lot of hurdles, including getting rights of way from freight railroad companies, building the tracks, so I wouldn't expect to be riding the rails at 200-plus miles an hour in the U.S. anytime soon.

NORRIS: Adam, I want to shoot the last question your way. It comes from Bridget Madden(ph) of West Roxbury, Massachusetts. Let's listen.

Ms. BRIDGET MADDEN (Listener): My question about the stimulus package is fairly large in scope. I would like to know what its failure or what its success looks like. How can we tell if it's working or if it isn't?

NORRIS: Adam, how will we know that?

DAVIDSON: Well, I guess there's two key numbers: One would be unemployment, and the other would be GDP. So, unemployment is shooting up really, really fast. And at the end of the day, that's what an economy is supposed to do. It's supposed to employ as many people as possible.

President Obama's economic advisers have warned us that even with the stimulus, we're going to continue to see job loss, but the idea is - they're arguing that the stimulus will make that job loss not as bad as it would be without it.

GDP, the gross domestic product, basically the measure of the overall economy, we want to see that number go up. Last quarter, it fell at an annual rate of 3.8 percent. We do not want to see that. We want to see that number go into positive territory.

I would say that there's enough uncertainty about this; that people who hate the stimulus will be able to explain away any success, and people who love the stimulus will be able to explain away any failure by saying the stimulus wasn't big enough or it wasn't implemented fast enough.

So I think that we will be hearing debates and arguments about the success or failure no matter what happens.

NORRIS: I think we're going to have to leave it there.

Adam Davidson, John Ydstie, Richard Harris, thank you so much for delving into the stimulus bill for us.

YDSTIE: Thank you.

DAVIDSON: You're welcome.

HARRIS: Sure.

NORRIS: And we should say thanks also to our listeners for a collection of very good questions.

We have a lot more information on the stimulus package, the bank bailout and other aspects of the economic crisis. You'll find that on our Planet Money podcast and also on our blog. You can find all of this at npr.org/money.

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Correction March 25, 2009

In some broadcasts, we said that the stimulus plan would give a couple earning $250,000 an $800 tax credit in each of two years. While the maximum benefit is $800, it is phased out for couples earning between $150,000 and $190,000.

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