More About That 2008 Tax Rebate
January 22, 2008 – 11:52 am
Source: CNNMoney.com
Written by By Jeanne Sahadi
The biggest component of any plan to jump-start the economy will be sending out tax rebate checks.
It is the one element both President Bush and the Democrats agree on and it’s likely to be politically popular.
In a statement on the economy delivered Friday morning, President Bush said any plan should feature “direct and rapid income tax relief” to boost consumer spending. “Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less.”
As of Friday morning, there was little expectation that a deal would be finalized before Tuesday when Congressional leaders are expected to meet with President Bush.
Whatever the final decision, here’s how a rebate would work and when you’re likely to get a check.
When
Once a rebate is decided on, the IRS could start mailing out checks by the end of June since the agency is now in the middle of the 2007 tax-filing season, said Jason Furman, a senior fellow at the Brookings Institution. The IRS, however, is not yet commenting on the matter since negotiations about the rebate are still under way.
The goal, however, for both Democrats and Republicans is to get the money into the hands of consumers as soon as possible.
In a briefing after the president’s statement, Treasury Secretary Henry Paulson said, “If (tax relief) is broad-based and simple, I believe we’ll be able to get it out quickly and in time to make a difference this year.”
How much
Right now, President Bush is said to want an income tax rebate that would be generated by eliminating the 10 percent tax bracket, which applies to roughly the first $8,000 of income for single filers and the first $16,000 of income for married couples filing jointly.
That would mean taxpayers could get rebates of up to $800 if single, or $1,600 if married.
But neither President Bush in his statement nor Paulson in a briefing afterwards would confirm that amount. “I don’t want to play bigger than a bread box,” Paulson told reporters. “The president is focused on broad-baseed tax relief for those paying taxes.”
Who would get it
Democrats could get on board with an income tax rebate if it’s fully refundable, meaning that everyone with earned income would get the full rebate, even if they didn’t make enough money to owe income tax, said Furman.
Otherwise, roughly 40 percent of tax filers (which is more than 50 million households) would get only a partial rebate or no rebate at all, according to the liberal Center on Budget and Policy Priorities.
A significant portion of that 40 percent would be families of four making between $25,000 and $40,000, the CBPP said.
There are a few ways that could be prevented, Furman said.
One way is to offer tax credits, a dollar-for-dollar reduction of your tax bill. If it’s refundable, it means you get the credit even if your tax bill is $0 or something less than the full credit.
Another way is to have the rebate be a payroll tax rebate. The payroll tax - 6.2 percent of your wages - is what’s taken out of everyone’s paycheck to fund Social Security, no matter how low your annual income.
A payroll tax rebate would not affect your Social Security benefits or the long-term solvency of the entitlement program, Furman said, because it would really serve as a tax credit. In other words, money from your paycheck would still be taken out and put towards Social Security, but the federal government would send you a check that would serve as an advance on a refundable tax credit on your tax return.
