Tax Stimulus Plan- What it Means to You – February 17, 2008

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Tax Stimulus Plan- What it Means to You – February 17, 2008

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
February 17, 2008

Tax Stimulus Plan- What it Means to You
February 17, 2008

The big news story this past week was President Bush’s signing of the economic stimulus bill.  In a rare bipartisan effort, Congress agreed to provide rebates totaling $117 billion to 130 million Americans as early as May of this year.

Here’s who will receive the money:

  • People whose income is not enough to owe taxes but who have at least $3,000 of earned income in 2007 will receive $300 for singles, $600 for couples.  This includes Social Security recipients and veterans on disability.
  • Single tax filers will receive $600 while joint tax filers will receive $1200.  Tax filers will receive an additional $300 per child.  This means that a typical family with two children would receive $1,800.
  • Rebates will begin to phase out for single taxpayers with adjusted gross income (AGI) of $75,000 and fully phase out once AGI reaches $87,000.  For couples the phase out begins at $150,000 and fully phases out at $174,000.

You must file your 2007 tax return in order to receive your rebate.  If you have already filed your return, there is nothing else you need to do.  The government is counting on you taking your refund and heading straight to the mall.  A better strategy is to use the money to pay off credit card debt or add to your investments.

For home owners and prospective home buyers, the plan establishes a temporary increase in conforming loan limits for loans through Fannie Mae and Freddie Mac.  The old limit for a conforming loan, $417,000, has been increased to a maximum of $728,750 through December 31, 2008.  The new conforming limits are based on the ‘median’ home price in a given geographical area so you’ll need to check with your mortgage banker for the limits in your area.  With mortgage interest rates in the 5% range, now may be a good time to review your existing mortgage and consider refinancing, especially if you have an Adjustable Rate Mortgage.

To encourage business owners to spend money, the package allows you to fully deduct up to $250,000 (up from $128,000) of equipment purchases if total equipment purchases do not exceed $800,000 in 2008.  The new law also increases to 50% (from 30%), the amount of the adjusted basis for certain equipment, computer software and tangible property that may be claimed as a deduction in 2008.

The reason the government has decided to pass out free money is an attempt to ward off a recession caused by the subprime mortgage debacle.  They hope that by giving you the money, you’ll spend it, thus stimulating the economy, and that you will become more optimistic about the economy…meaning you’ll continue to spend.  In fact, it’s consumer confidence and consumer spending that have provided the pillars of support for our economy for the past several years.  The total value of the stimulus package is worth about $152 billion this year, or about 1% of total Gross Domestic Product (GDP).  There is no doubt that this will provide a shot of adrenalin to our economy.  Federal Reserve Chairman, Ben Bernanke, has also indicated his commitment to do whatever it takes to ward off a recession.  If they can also provide significant relief for homeowners caught in the subprime crosshairs, this just might work.