Stimulus Plan Refunds $600 to $1,200 to Taxpayers

Understanding Economic Help

Read a Q&A on the deal House leaders and the Bush administration reached to jumpstart the sluggish U.S. economy.

 

Also, find out more about what the Federal Reserve's recent decision to cut a key interest rate means for consumers.

Congressional leaders and the White House announced Thursday that they have reached a rare compromise. The tentative deal comes on a package of tax rebates for households and tax cuts for businesses, both meant to give the economy a much-needed jolt.

The measure would mean up to $600 for individuals and twice that for couples who file taxes jointly. Families with children would get an additional $300 per child.

Neither side was completely happy with the agreement, which is likely to be changed once it reaches the Senate. Still, both sides predicted quick passage in the House.

The agreement was largely hammered out Wednesday in a series of meetings with House Speaker Nancy Pelosi, Minority Leader John Boehner and Treasury Secretary Henry Paulson. It was a remarkable display of speed and willingness to compromise — rare commodities in the current Congress.

Speaking less than an hour after the formal agreement was announced at the Capitol, President Bush said the deal met his criteria for a stimulus package that was robust, effective and temporary.

"This package has the right set of policies and is the right size," he said. "The incentives in this package will lead to higher consumer spending and increased business investment this year. Importantly, this package recognizes that lowering taxes is a powerful and efficient way to help consumers and businesses."

Boehner called the deal a big win for the American people.

"You know, many Americans believe that Washington is broken, but I think this agreement will show the American people that we can fix it and will serve to move along other bipartisan agreements that we can have in the future," he said.

The tax rebates will go to some 117 million Americans. Those individuals who don't make enough to pay income taxes will get rebates of $300. The rebates will start to phase out for those who earn more than $75,000 or for couples who earn more than $150,000. Businesses will get tax write-offs that are double what they can take now on new investments, as well as incentives to invest in new equipment.

The measure also contains changes to federal mortgage programs aimed at helping homeowners facing foreclosure to refinance their loans.

Still, Democrats were clearly less than jubilant about the deal.

"I can't say that I'm totally pleased with the package, but I do know that it will help stimulate the economy, and if it does not, then there will be more to come," Pelosi said.

The biggest complaint among Democrats was over what was left out, especially extended unemployment benefits. Charlie Rangel (D-NY) said he did not understand the resistance from the president and Republican congressional leaders to those additional benefits.

Still, Democrats in the House are expected to swallow their disappointments and overwhelmingly approve the package.

Senators, meanwhile, made it clear they would go their own way. Majority Leader Harry Reid said Senate Democrats would like to add a number of programs to the measure and that he considered the bill's $150 billion price tag negotiable.

"That's not a magical figure, and a lot of things that we're talking about here are fairly small — for example, the summer employment program for $500 million."

Sen. Charles Schumer (D-NY) also said that, as far as he was concerned, the House stimulus package needed more.

"Those spending stimuli should focus on unemployment insurance but could be other things — money for summer jobs; money, if it can be spent quickly, for infrastructure; money for nutrition assistance; things like that," he said.

Senate Republicans have signaled that they are unwilling to let the stimulus measure become a vehicle for pet spending programs.

The House is expected to take up the measure during the first week in February, the Senate soon after. Depending on the outcome, Paulson says consumers could start getting checks in May.

Q&A: What's in the Tentative Stimulus Deal?

House leaders and the Bush administration earlier this month reached a deal on how to deliver an economic stimulus package to help jump-start the sluggish U.S. economy. The $146 billion agreement includes tax rebates for individuals, tax cuts for businesses and help for American homeowners. The stimulus plan now moves to the Senate, where leaders there seem intent on making some changes.

The head of the Senate Finance Committee challenged the agreement worked out by House leaders and the president with a $158 billion counteroffer. The move dashed hopes Bush had for moving his stimulus proposal quickly through Congress and to his desk.

Here, read about what happens next and when you might see a rebate check in your mailbox.

What kind of tax rebates would individuals get under the House bill?

House leaders and the White House have agreed to tax rebates worth more than $100 billion for individuals and families. The tax rebates would be:

  • Up to $600 per person
  • Up to $1,200 per couple
  • An additional $300 per child

Who would be eligible for a rebate?

Under the agreement worked out by House leaders and President Bush, taxpayers earning less than $75,000 and couples earning less than $150,000 in adjusted gross income for the year would receive a rebate check. To be eligible for the income tax rebate, taxpayers would have to have earned at least $3,000 in 2007.

The agreement expands the scope of President Bush's original stimulus plan, which would have limited tax rebates only to those who pay income tax. The new agreement would provide $28 billion to 35 million families who wouldn't have been eligible under President Bush's original proposal, according to House Democrats.

When could I expect a check in the mail?

It's unclear when a final deal will be reached. Treasury Secretary Henry Paulson says the IRS could begin issuing rebate checks — either electronically or as paper checks — within 60 days of when the economic stimulus package is enacted. The lion's share of the rebates would then be delivered within a 10-week period, according to Paulson. But Paulson warns that the agency will need to focus for two weeks in April on the demands of the regular tax-filing season. If the bill is enacted in mid-February, as many lawmakers hope, then the process would be wrapped up by mid-summer.

What kind of tax cuts would businesses get?

The House package includes tens of billions in tax cuts for corporations.

It would allow all businesses to immediately write off 50 percent of the purchase cost of new plants and other equipment. In addition, small businesses would be permitted to write off other equipment purchases.

Does the deal address the mortgage crisis?

Yes. The House package would temporarily increase the size of mortgage loans — known as the conforming loan limit — that Fannie Mae and Freddie Mac can purchase: from the current $417,000 to a maximum of $729,750. It would also permanently raise the cap on Federal Housing Administration mortgage loans from $367,000 up to $729,750.

Why raise the conforming loan limits?

Supporters say raising the loan limits will deliver lower interest rates to a large number of homebuyers.

Right now, mortgages for more than $417, 000 carry higher interest rates than mortgages below that amount. That's because Fannie Mae and Freddie Mac are not allowed to back loans above that cutoff.

Higher loan limits will make many more homeowners eligible for lower rates, which could translate to savings of hundreds of dollars each month for those in high-cost areas of the country.

But some critics warn that higher loans limits will merely result in more — and bigger — bad loans being bought up by government agencies. And that means that when these loans go bad, taxpayers will be left holding the bag.

What's in the Senate version?

The proposal from Senate Finance Committee Chairman Max Baucus (D-MT) includes tax rebates and business tax cuts. It would also offer 13 weeks of additional unemployment insurance, a proposal that House Democrats dropped during negotiations with President Bush.

Under Baucus' plan, the tax rebates would be:

  • Up to $500 per person
  • Up to $1,000 per couple
  • An additional $300 per child

Unlike the House bill, Americans receiving Social Security benefits would receive rebate checks.

Baucus' proposal also includes business tax cuts similar to those offered by the House, but he would also allow companies to write off losses going back five years.

What happens next?

The deal struck among Democratic and Republican House leaders and the White House was a major political breakthrough. However, now that the Senate has laid down its initial counteroffer, a conference between the House and Senate will be required to negotiate what is likely to be a delicate compromise.

But before it can even get there, it needs to pass the Senate, and lawmakers have made clear they have a long wish list that includes proposals to increase food stamps, provide heating assistance for low-income Americans and increase spending on infrastructure projects. What's more, the Senate bill stalled on Wednesday after leaders failed to muster the votes necessary to begin debating it.

President Bush has repeatedly warned the Senate against "loading" up the bill because it would mean slowing down the effort to jump-start the economy.

The Associated Press contributed to this report.

What the Fed Rate Cut Means for Consumers

The Federal Reserve's decision Wednesday to cut a key interest rate by half a point comes as fears of a recession grow. Here's a look at what the move means for consumers — and what else to look out for amid the economic turmoil:

Is now a good time to refinance my house?

It certainly could be. Thirty-year fixed-rate mortgages have been dropping since Christmas. The average is now 5.5 percent, quite low by historical standards. So if you have an adjustable rate mortgage that's going to reset, now could be an excellent to time to swap into a fixed-rate loan.

Lending standards have changed since the "anything goes" days of the housing bubble that burst last fall. "Here's why," says Greg McBride, senior financial analyst with bankrate.com, a personal finance Web site. "There are actually standards now. Instead of the loan requirement being the ability to fog a mirror, the people now in the best position to get mortgages have good credit, proof of income and either money for a down payment or equity in an existing house."

Lower interest rates will take some of the sting out of adjustable rate loans that are resetting higher. Those resets have been causing a lot of pain for struggling homeowners lately. For most people, fixed-rate mortgages are still the way to go, McBride says, because they offer peace of mind and permanent affordability.

What about car loans?

They aren't really affected much by what the Federal Reserve does. And beyond that, McBride says, a low-interest rate environment doesn't make cars and trucks much more affordable. "The best advice is to shop around to get the best rates before you go to the dealership," McBride says, "and then brush up on your negotiating skills."

How about the interest on credit cards?

Those rates are always relatively high. But they're falling and should continue to drop for a while. The average rate on a standard card is 13.4 percent, down from 14 percent in December, when the Fed started cutting interest rates. McBride says there can be a lag of up to 90 days before those lower rates are reflected in credit card statements.

Are more interest-rate cuts likely to occur?

The Fed has been moving very aggressively lately — making an unprecedented three-quarters of a point cut on Jan. 22, followed by a half-percentage point cut Wednesday. It's a measure of how serious Fed Chairman Ben Bernanke is about problems in the credit market and the threat of a recession. The Fed's main policy-setting interest rate has been pushed down to 3 percent. Whether additional cuts follow depends on what happens in the broad economy, and, to a lesser extent, on the financial markets.

In its statement Wednesday, the Fed left the door open to additional rate cuts by noting that despite everything it has done recently, "downside risks to growth remain." The Fed will be looking closely for signs of deterioration in the job market. If the economy starts to shed jobs rather than generate new ones, the Fed may be cutting rates for the foreseeable future.

Any particular advice for people nearing retirement age?

Whether times are good or bad, financial advisers have the same fundamental advice for people nearing retirement age: Their investments should be less risky than when they were younger. Their portfolios should be weighted more to bonds and fixed-income assets, such as CDs and money market funds, than to stocks. In a period of market volatility, the risks (and potential rewards) of stocks become even more pronounced. So if you need a predictable source of income within a few years, your exposure to the stock market should be limited.

Interest-rate cuts aside, could economic conditions have an impact on the availability of jobs?

Most definitely. The pace of job creation has already slowed. The unemployment rate jumped in December from 4.7 percent to 5 percent and the economy created a paltry 18,000 jobs, the slowest pace in more than four years. The Labor Department's next employment report will be released Friday. It could reveal a great deal about the direction of the economy. A primary concern in all the recent financial turmoil is that struggling banks will drastically scale back lending to businesses. Companies won't have the capital to invest. They'll become nervous or even fearful about the future, and they'll lay off workers. If we see evidence of that in the next jobs report, worries about a recession will escalate.

What about the White House and Congress? Are they still working on a stimulus plan –- and is that going to put money in my pocket?

There's an unusual sense of urgency in Washington to get some kind of stimulus package passed.

Just about everyone in Washington, whether Democrat or Republican, favors some kind of quick rebate to taxpayers.

President Bush and House leaders favor a plan that would send rebates of $600 to individual taxpayers and up to $1,200 to households, along with tax breaks for businesses to invest in new equipment. The House passed its $146 billion stimulus package on Tuesday.

Senate lawmakers, meanwhile, are working on a slightly different stimulus plan. The $156 billion bill includes smaller rebates that would go to more Americans. Individuals would receive $500 and couples would receive $1,000. Like the House plan, the Senate bill would offer an additional $300 per child.

The Senate bill would also extend unemployment insurance, and senators are expected to try to add more proposals, including an increase in food stamps, heating assistance for low-income Americans and more spending on infrastructure projects.

President Bush has warned the Senate against "loading" up the bill because it would slow down the effort to jump-start the economy as soon as possible. Any differences between the two chambers' bills will have to be hammered out before a final package can be signed into law and rebate checks can be mailed.

One more obstacle: tax season. The IRS wouldn't be able to process the payments until after the April 15 tax filing deadline.

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