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S.O.S. STIMULUS PLAN

January 24, 2008

Same old stuff. Or same old stimulus. The White House, Congressional Republicans, and Speaker Pelosi have agreed on how to bribe us with our own money in the name of stimulating the economy. The plan includes three parts of the last stimulus plan, passed in 2001: cash rebates, bonus depreciation, and increased Section 179 deductions. From the press release of House Republican Leader Boehner:

Summary of the Economic Growth Package Agreement in Principle

I. Tax Relief for American Families:

Rebate Checks: The economic growth package will include rebate checks in the sum of two separate calculations, with an overall phase-out for those with adjusted gross incomes above $75,000 for a single taxpayer and $150,000 for married couples. Rebate checks will include a base amount determined by the greater of two options: (a) Income tax paid in 2007, with a maximum of $600 for a single taxpayer and $1,200 for married couples; or (b) $300 for an individual and $600 for a married couple, provided the individual or couple earned income of at least $3,000 in 2007.

A children’s bonus also will be included in the rebate check calculation. Anyone qualifying for the base amount also receives an additional $300 per child, with no cap on the number of children.

II. Tax Relief for Employers:

Bonus Depreciation: The economic growth package will provide for a 50 percent bonus deduction on new equipment in the year it is placed in service, with certain exceptions for equipment with a “long life.” This temporary tax cut offers significant savings on new property with a depreciation period of 20 years or less. This will give employers – particularly small businesses – greater incentive to invest and create jobs for more Americans searching for work. The temporary bonus depreciation, coupled with expensing measures enacted in May 2003, resulted in a four percent increase in business spending in the first six months alone.

Section 179 Expensing: This provision allows employers, including small businesses, to fully expense $250,000 in both new and used tangible property in the year it is purchased up to an overall investment limit of $750,000. This will provide a particularly strong incentive for small companies to invest in their businesses so they can continue to provide good-paying jobs for the American people.

Increase in Government Sponsored Enterprises (GSE)/Federal Housing Administration (FHA) Conforming Loan Limit: The conforming loan limits for both FHA and GSE (such as Fannie Mae and Freddie Mac) loans would be increased from $362,000 to $725,000 and from $417,000 to $625,000 respectively.

The loan limit is very strange. Didn't we get into this problem by people borrowing too much on home loans? And now we're encouraging more of that?

The big question for the tax provisions: when are they effective? Presumably starting about now; it doesn't make sense to provide extra depreciation for investments already purchased, but it also doesn't make sense to delay the effective date, which would encourange businesses to delay purchases.

Another item not mentioned in the Boehner release is an increase in the net operating loss carryback period, which some reports said would be included.

Sadly, our targeted stimulus plan seems to have been ingored.

Tags: rebates.stimulus.tax policy.

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