Latest Debate on Tax Rebates…

On Jan. 24, Congressional Democrats and Republicans and President Bush reached an agreement on a bipartisan stimulus package aimed at immediately jumpstarting the slowing economy. The House stimulus package will include:

• Rebates. Rebate checks will be computed under two separate calculations, with an overall phase-out for those with adjusted gross incomes above $75,000 for single taxpayers and $150,000 for married couples. Rebate checks will include a base amount determined under the greater of two options:
  • income tax paid in 2007, with a maximum of $600 for a single taxpayer and $1,200 for married couples; or
  • $300 for an individual and $600 for a married couple, if the individual or couple earned income of at least $3,000 in 2007.

  The rebate check calculation will also include a children’s bonus. Anyone qualifying for the base amount will also receive an additional $300 per child, with no cap on the number of children. A total of 117 million families will receive rebate checks.

• Bonus depreciation. The bill will provide for 50% bonus deduction on new equipment in the year it’s placed in service, with certain exceptions for equipment with a “long life.” The temporary tax cut will affect depreciation on new property with a depreciation period of 20 years or less. It’s estimated that the bonus depreciation, coupled with expensing measures enacted in May 2003, will result in a 4% increase in business spending in the first 6 months.
• Section 179 expensing. This bill will allow employers, including small businesses, to fully expense $250,000 in both new and used tangible property in the year it’s purchased with an overall investment limit of $750,000. (Under current law, taxpayers can expense up to $128,000 for 2008 with an overall investment limit of $510,000.)
• 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 will be increased.

The stimulus bill will includes no spending on unemployment insurance, transportation infrastructure, food stamps, or Medicaid. It’s expected that the House will approve the stimulus initiative quickly. Floor consideration of the package is likely on Jan. 29.

Meanwhile, Senate Finance Committee Chairman Max Baucus (D-MT) said that the Finance Committee will mark up its own stimulus bill next week—one different from the House’s. Baucus indicated that the Senate bill might include extending unemployment insurance, increasing food stamps, and additional business incentives. Expressing his intention to work quickly, in a bipartisan manner, Baucus stated that he thought the Finance Committee would complete its work by the time the House sends a bill to the Senate.