Stimulus Package – What Does It Mean For You?

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Confused about the stimulus package? Here’s a quick summary from Bloomberg:

Bush and House lawmakers yesterday agreed on a $150 billion economic stimulus package aimed at avoiding an election-year recession. About $100 billion would pay for tax rebates to about 117 million families and $50 billion for business tax breaks.

The package also addresses the growing number of housing foreclosures with a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, to temporarily buy mortgages of as much as $729,750, up from the current limit of $417,000.

And here’s my short version:

  • Singles: If you earn less than $75,000, you’ll get $600. Married couples: If you are filing jointly and earn less than $150,000 combined, and you’ll get $1,200. Additional $300 per kid. Additional details for each scenario in this Treasury Department Factsheet (thanks to commenter cek260).
  • This is just the proposal they’ve agreed to vote on, but nothing has been approved yet. Bush hasn’t signed anything. Therefore, there is nothing you need to file or do yet in order to get your check. It is an election year, however…
  • You won’t see any checks until May (read: June or July) at the earliest.
  • Raising the conforming loan limit is good for folks like me who don’t want to pay 1% more interest for a Jumbo loan. Doesn’t really seem like something to help most middle-class folks, though. Seems to be mainly a product of lobbyists for the banking and housing industry.

But again, nothing firm has actually occurred yet, despite the news frenzy.

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  1. Thanks for the summary! It’s nice to read just what matters instead of all the extra stuff thrown in in the news reports.

  2. Awesome, I will take this money and put it in my E*TRADE savings account earning 5% interest.

    Is anyone going to spend their money??

  3. What tax year is the rebate based on? I canot find any info on that.

  4. I wonder if that 75K is AGI

  5. the 75K is AGI, not GI.

    also, i just had a kid two weeks ago — will I be eligible for the $300 additional, or is this rebate based on my 2007 returns?

  6. if i file jointly but my wife does not work outside the home do we get $1200?

  7. Will this be based on tax year 2007?

  8. Raising the conforming loan limit is a bad idea as it is going to make the taxpayers liable in the next mortgage crisis. Conforming loan means that government is taking the responsibility for that loan in case of default.

  9. Carlo: A couple is if you are filing taxes together. If your wife is a stay-at-home mom, she probably doesn’t pay the minimum income tax required in this plan, therefore you wouldn’t be considered as a “couple” for this rebate, which means that you would be considered as a single person, and since your income is >75k, you would not receive the rebate.

  10. No where does it say you both have to work.

  11. Yep. Rising conforming loan limit is a BAD thing for the folks who did not buy yet. I heard from a person who actually sells mortgages for a living (in CA, by the way) that Fannie does not, in fact, check borrower’s income or money in his bank account. The only thing they care about is the credit score. So, in effect, what you are getting is “stated income” loan. And we all know full well where did this lead last time. So Jonathan’s timing might, in fact, be perfect.

  12. Rebate is based on 2008 returns; that’s why thery are waiting till May-June timeframe.

  13. I can only assume it’s based on 2007 numbers, if they intend to send out checks in May.

    As long as you file a married filing jointly return, I don’t think both have to work and you are subject to the combined limits. But if it’s two unmarried people who form a “couple” or if you’re married filing separately, I think the individual income rules apply. I tried to combine this into one sentence, but that just made it wrong in both ways. I changed the originally post.

  14. I can’t figure out if you are eligible if you have a single income household (i.e. My wife is a Stay at home Mom). I earn more than 75k but less than 150k. Most descriptions say working COUPLE.


  15. Now the economic crisis develops, with a political crisis following close on its heels. Loosely paraphrasing Richard Nixon, “We are all Keynesians now.” For that matter, why not print money and give it away by the truckload? Don’t’ think we haven’t already done it. Look at the government’s proposed stimulus package. Look at government spending at every level. The generational crisis follows the ancient Roman pattern: each generation believes it must live better than the previous generation. Inevitably a generation arises that lives better by living indebt. When the debt becomes unmanageable the political system comes unglued. But there is something more to this, as well.

    In Wednesday’s “Wall Street Journal,” Bill Wilby’s column “The Dollar and the Market Mess” begins with a quote from John Maynard Keynes: “Lenin was surely right. There is no subtler, no surer means of overturning society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Wilby noted that currency debasement is the worst of all worlds because there are negative strategic implications as well. “Oil traders know this,” he explained, “and it is why the immediate consequence of the Fed’s earlier 50-basis-point cut was to take the dollar down and oil prices up. One could write a separate essay on what a lower dollar and higher oil prices do to our strategic interests, such as propping up regimes like those in Iran and Russia.”

  16. What about the business side of this package? Any specifics on that?

  17. 1. Receive Check.

    2. Buy silver or gold.

  18. I’ll use my check to buy a yacht…..

    If there’s any left over, I’ll probably invest it in some quality carpentry tools…

  19. all this does is make our deficit that much worse

  20. Chris are you planning to buy a miniature yacht? Cause $600 might get you a lifeboat, but thats about it.

  21. Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

    Unfunded promises made for Medicare, Social Security and federal retirement programs account for 85% of taxpayer liabilities. State and local government retirement plans account for much of the rest.

    This hidden debt is the amount taxpayers would have to pay immediately to cover government’s financial obligations. Like a mortgage, it will cost more to repay the debt over time. Every U.S. household would have to pay about $31,000 a year to do so in 75 years.

  22. Here is a link to a stimulus “fact” put out by Treasury:

    based on AGI / number of children…

    Also, congratulations on the house… my wife and I also just purchased just outside of Washington DC and are going to closing in February. Did we get a good price- absolutely… new construction at about 12% less than 8 months ago. Scary? yes, but this is more than an investment, it’s a place to live and grow, and we’re in it for the long-haul. good luck…

  23. I just hope we dont get taxed on that income next year!

  24. Thanks for the factsheet link cek260. Hope you enjoy your house!

  25. As I heard it this morning on the news, this money will definitely not be taxed at the federal level and apparently the consensus is that it would take some serious juevos for the states to try & tax the money as well……….but………..ya’ never know.

    —-Aanuld maaeeeet vaaant tooo taaake zisss munny and taaax it aat zeee highest levull tooo ensuuaaa mooa munny fooa duh next taxpayuuh criseeeess. —— LOL!!!!!!!!!

    As soon as I heard of this “rebate” I immediately thought…….***BAD IDEA!!!!!!***

    But I’m of the belief lately that this country has TRULY lost its marbles. We must look laughable to the rest of the world about now.

  26. so…… my $600 – comes from us gov – loaned to the us gov by china – for me to buy goods that probably come from china …….. i think i’m going to spend it all on beer……. and welcome our new leaders

  27. Question: “How will the president’s tax rebate work for families with a stay at home mom? Does the ‘working couple’ apply to them, or will the family be punished for having a mom be a mom and stay home with the children? Thank you”

    Shari from California

    McPherson: According to examples provided by the Treasury Department, the rebates depend on a married couple’s joint adjusted gross income, not on whether both parents are working. For instance, a married couple with two children and an adjusted gross income of $80,000 and income tax paid in excess of $1,200 would receive a total rebate of $1,800: $1,200 for the couple and $600 for the two children.

  28. Amen good sir! As Kanye West would say though, George bush gots the answers.

  29. Great. After looking at all my deductions and finances from last year, if I squeeze every deduction for all it’s worth…my wife and I are at $152k AGI. Nerts. Just had a kid mid Dec. as well. Although I did well last year, this year doesn’t look to be nearly as good. Could have used that $1200. Now the wife isn’t working, the kid seems to want to eat nearly every day (that’s a joke by the way), and my house is worth diddly. Glad I didn’t buy a new car last year…and I hope I can squeeze another year out of my Fraud Exploder (Ford Explorer).

    Your blog is awesome by the way.

  30. Jason: If your not going to spend the rebate you might as well send it back. The whole point is to get the money to people who will spend it to get it back into the economy.

  31. Yea, to clarify, I was implying that you wouldn’t get it in you filed separately. and that the “couple” numbers would apply if you filed together.

  32. [i]After looking at all my deductions and finances from last year, if I squeeze every deduction for all it’s worth…my wife and I are at $152k AGI. Nerts.[/i]
    It looks like it’s gradually phased out after $150k, not all or nothing, with a $100 reduction for every $2k over $150k.

  33. “Jason: If your not going to spend the rebate you might as well send it back. The whole point is to get the money to people who will spend it to get it back into the economy.”

    I don’t know man – smart people tend to save money (though I often disagree with Jonathan’s homeless-degree of saving), and when smart people make smart decisions, usually the economy gets a bump in the right direction. It’s the poor financial decisions of individuals which hurts the economy, not saving vs. spending $600-1200.

  34. That is not certain… first it was 800 – 1600 now is 600 – 1200, Prime rate drop 3/4 and news is going that it may drop more, some say down to 2%

    If the government is willing to cut the Interest and give free money (do really families that earn 150K need 1.2K it is less then 1%). Where the money will come? Your savings account will drop earnings too…

    Government can print as much money as you wish… the problem could become the value of that money. Bolivian Bolivar’s are 5000 to the dollar on the black market. Do we wish that to happen in US?

  35. So they want us to spend this money, not save it. And we’re not supposed to spend it on stuff we were going to buy anyway, like gas or the electric bill. No, we’re supposed to go out and buy something completely unnecessary, probably made in China. I’d really rather have single-payer health insurance. That would be really stimulating!

  36. I heard a talk radio caller (station was based out of the bay area where the jumbo loan part would be applicable) bring up a point that at least on first glance does raise an eyebrow…

    So imagine you own a house in San Fran that is now no-longer considered “jumbo.” By itself this would be great news, except a lot of homes have reduced in value latetly = no equity to refi with. Combined with the fact that mortgage lenders are now actually requiring the types of downpayments that they probably should have been all along – wouldn’t homeowners be requires to provide a downpayment to refi to take advantage of this change? Seems only mostly useful for somebody who is about to buy.

    Meh – what do I know. 🙂 I’m trying to relocated from NYC to Austin in the next several months… and eventually buy a place too. So as far as I’m concerned no amount of saving is enough. Not the most exciting use of $600. However, if I can save a downpayment while living in NYC (2 roommates, Christmas part-time work) – anybody can!

  37. Can someone explain to me the terms of this so called “rebate?” Do you have to pay this money back to the government the next year? I heard that this is not free money but instead money you are borrowing from yourself in a future tax return. Can anyone shed any light on that?

  38. Nevermind I think I figured it out…. back in July 2001 the bush administration did something similar where they retroactively cut the income tax tables from 15% to 10% which meant that in theory most tax payers would be richer the next year by $300 or $600 etc. depending on their situation.

    However for good PR the government decided to advance them that expected extra money by mailing out checks. People then got a little miffed later on when the realized they had to account for that check in April of 2002 and their rebate looked like it was smaller by $300 or $600 or whatever it was. But that money never would have been there in the first place without the stimulus package so they really did make out better!

    Its convoluted and depending on how you look at it you might think the whole think was a wash but I think people really did save money by not sending as much to the government. Thoughts?

  39. Forgot to reference this page which reminded me what happened in 2001

  40. “Awesome, I will take this money and put it in my E*TRADE savings account earning 5% interest.”

    Hmmm, Jason, perhaps you earn too much money or they need to lower the cap. I think the government wants you to SPEND the money, hence the upperbound income cap.

    If they sent me 1200 bucks, which they wont since I fall outside the limits, then I would invest in foreign currency and canroys…the exact opposite of what the gov’mnt wants to happen. Unfortunately, we are a nation of consumers, and we have been tricked into thinking that consumerism is the fuel for the economy. This does not bode well for the dollar – borrowing money from China to fund 150B in stimulus money which we will give right back to China for our flat screen TV’s!

  41. MM, the increased conforming loan limit is a temporary thing and will likely be pushed back down when the market settles.

    Sallie Mae and Freddie Mac probably will be losing money on those loans anyway and will not be too excited to buy them. Nothing is requiring them to buy, they just now have the option.

  42. One thing I keep wondering is, if you are eligible and choose to file your taxes in February, will you still receive the check if your refund comes early?

  43. How does this work for people who are claimed as dependents on other people’s tax return? My parents get and additional $300 and I get nothing?

  44. I think that it is a good idea, it would help families on a tight budget.

  45. Buy American!!!

  46. Ok, so I’m sure some people have captured this, but here’s what’s going on: the government is inventing $150B and then handing it out. That makes all of your current dollars less valuable by an approximately equal value. So if you throw the money into a savings account at 4-5% you’ll have successfully managed not to lose money.

    Terry’s “Keyneysian” post basically captures the issue (but only for those who already know what’s going on). Basically, if you make over 150k, then the government is cleverly stealing money from you and redistributing to the “less fortunate” in hopes that they will spend it.

    It’s nice to think that you’re smart for not spending it, but for the average person you’re not going to really make any progress. Saving the money and earning interest on it just helps the bleeding.

    Right now interest rates are basically level (or just under) inflation. So saving your return won’t even stop the bleeding. The extra money will cause a rise in inflation, the interest rates will drop again and hopefully the $600 will make up for the fact that every dollar you own is basically worth less money.

    The US (and yeah, I live here now guys, just moved from Canada) is basically set up for an inflationary recession (general interest lower than inflation). The debt load is tremendous and trust in the USD is very low. The country has to undergo some kind of recession and this inflationary recession is likely the best kind. Average people don’t notice inflationary recessions. It takes a few year before people notice that food prices have gone up 30% but their salary has only gone up 5%.

    But hey, the average person does not understand this debt in any way shape or form. Of course, if you’re on this board, you should understand what I’ve just explained and you probably have a lot of vested interest (read money) in reducing the amount of USD that gets “invented”. Instead of just talking about the details of how you can claim you money or how “clever” you are for saving it, why don’t you talk to your local elected official and ask him to vote against it?

    I don’t want to be downer, but why is everyone so happy about this thing? This isn’t free money, this isn’t the credit card sharing their profits with you or some type of “loyalty” rebate. This is the government reducing the value of everything you own and cutting you a check for that number.

    Why does nobody want to protect their money?

  47. “Raising the conforming loan limit is good for folks like me who don’t want to pay 1% more interest for a Jumbo loan. Doesn’t really seem like something to help most middle-class folks, though. Seems to be mainly a product of lobbyists for the banking and housing industry”.
    Of course this will help middle class folks in areas where the median home price is North of $500,000. What is your idea of middle class?

  48. What’s your definition of “most”? 🙂

    “Doesn’t really seem like something to help most middle-class folks, though.”

  49. Hello, this may be an obvious question, but it comes from someone who knows very little about economics.

    I am a graduating senior in college (age 21) and my parents claim me as a dependent, however, I made around $6000 in 2007, am I eligible for a rebate? In what amount?


  50. Go out and buy a quality American made firearm.

  51. I am going to convert the check into euros. No joke.

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