Tax Rebate or Payment? A Policy Debate Begins

[Woodmonkey]

Tax Rebate or Payment? A Policy Debate Begins


President Bush, in his statement on the economy Friday in Washington, called for roughly $145 billion in tax relief for individuals and businesses. But the president did not offer specifics.

WASHINGTON — As President Bush and Congressional Democrats begin negotiations on a package of measures to stimulate the economy, the big fight will be over whether to put extra money in the hands of tens of millions of low-income families who paid little or no income tax last year.

Nearly 40 percent of Americans owed no federal income tax last year, though even low-income workers paid taxes for Social Security and Medicare. While Mr. Bush has refused to disclose specifics of his $145 billion plan, administration officials and Republican lawmakers favor a proposal that would offer rebates of up to $800 for individuals and $1,600 for families — but only if they paid that much in taxes last year.

For practical purposes, analysts estimate, a family of four with an income of $24,000 would receive no government payments at all, and families with incomes below $40,000 would at most receive partial rebates. But a household with an income of $100,000 or more could get back $1,600.

“The president again is focused on broad-based tax relief for those who are paying taxes,” said Treasury Secretary Henry M. Paulson Jr. when asked at a news conference on Friday whether “everybody” would get a tax break. “This is something that has worked well before, has worked in 2001, worked in 2003.”

Administration officials and Republican lawmakers say it only makes sense to give tax rebates to people who actually paid taxes.

“You have to be a taxpayer in order to get a tax rebate,” said Representative Paul D. Ryan, Republican of Wisconsin and a member of the House Ways and Means Committee. “The White House is very clear that this is for people who pay taxes.”

But Democrats are gearing up to fight that approach, arguing that a stimulus plan should put money in the hands of low-income people, both as a matter of fairness and because people who are struggling to make ends meet are most likely to spend any government payments quickly. For the purpose of jump-starting the economy, economists want people to spend extra money as quickly as possible.

On the presidential campaign trail, Senator Hillary Rodham Clinton of New York and John Edwards, a former senator from North Carolina, attacked the Republican approach for excluding people who need help the most. Senator Barack Obama of Illinois has already proposed a $90 billion program of rebates and supplemental Social Security payments that his aides said would reach 95 percent of workers.

Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal research group in Washington, estimated that under the Republican plan, as many as 65 million Americans with low or modest incomes would miss out on part or all of the payments.

“This approach fails on two counts,” Mr. Greenstein said. “It omits or partly omits those who need the help. And it omits the tens of millions of people who are living paycheck to paycheck and who would be most likely to quickly spend every dollar they can get.”

In Washington, Democratic lawmakers and senior administration officials were working on a fast compromise, and both sides took pains not to jinx the effort. Mr. Bush refrained from insisting on any specific measures, and Mr. Paulson told top Democrats that all options were still on the table.

Democratic aides in Congress said a compromise would have to include money for low-income people, either through tax rebates or temporary increases in antipoverty programs like unemployment benefits and food stamps. For Republicans, a compromise would mean including tax incentives for business investment — a demand that Democratic leaders said they were open to discussing.

The administration’s preferred approach, which Republican lawmakers have already been circulating on Capitol Hill, would provide rebates by temporarily reducing the lowest tax bracket to zero, from 10 percent. The lowest tax rate applies to the first $8,000 in taxable income for individuals and the first $16,000 in taxable income for families.

Democratic staff members on the House Ways and Means Committee said that a family of four would not be entitled to the full rebate until its income reached about $40,000. Almost by definition, the approach would exclude millions of people who were unemployed or living largely on Social Security. It could also bypass families with incomes as high as $60,000, depending on the kinds of tax credits they use to reduce their taxable incomes.

People familiar with the discussions said Mr. Bush raised the issue in a conference call with Congressional leaders on Thursday, but he backed off from announcing specific proposals after Democrats complained that he was jumping ahead on his own.

The Republican approach contrasts sharply with plans discussed by Congressional Democrats and Democratic presidential candidates.

Mr. Obama’s plan offers $250 in government payments to all working adults, $500 if the economy continues to worsen, and similar payments of up to $500 to people receiving Social Security benefits. His advisers estimated that the payments would reach 95 percent of all workers, and all Social Security recipients. Though the payments would be lower than those proposed by Republicans, they would reach more people.

Mrs. Clinton announced a similar plan on Friday that would cost $40 billion and come on top of $70 billion in new spending programs. In an interview with National Public Radio on Friday, Mrs. Clinton criticized Mr. Bush’s plan for excluding lower-income citizens.

“These are lower-income senior citizens living on fixed incomes,” Mrs. Clinton said. “This would be disproportionately African-American and Hispanic families who have, on average, lower incomes than white families and would therefore not be even paying taxes.”

But Edward Lazear, chairman of the president’s Council of Economic Advisers, said the primary goal was to stimulate growth rather than redistribute income.

“There are many noble goals, and there are many things that we want the government to do,” Mr. Lazear told reporters on Friday. “But remember that the goal that we are thinking about right now is to ensure that the economy does not slow significantly.”

The Source

[BrianK]

I can see where returning tax money to people that paid taxes makes sense. It has to be hard on people that could really use the amount being discusssed but sense they didn't pay taxes they would be left out.

Somewhere in there was the logic that the people that need it most would spend whatever they might get. That makes sense. Maybe better yet take the pork barrel spending out of the budget. Long term continued sound fiscal spending by our lawmakers would IMO be a better solution.

From what was presented we would get the max back & we would invest it. That thought was in the article too.

Bottom line I think anytime the Gov. meddles in the economy, even with good intentions the long term affect is a disaster.

[redtanker]

I do think something like this can help stimulate the enconmy, I am not sure of the best way. But money in the pocket will be spent'

[Shooterman]

Originally Posted by BrianK

I can see where returning tax money to people that paid taxes makes sense. It has to be hard on people that could really use the amount being discusssed but sense they didn't pay taxes they would be left out.

Somewhere in there was the logic that the people that need it most would spend whatever they might get. That makes sense. Maybe better yet take the pork barrel spending out of the budget. Long term continued sound fiscal spending by our lawmakers would IMO be a better solution.

From what was presented we would get the max back & we would invest it. That thought was in the article too.

Bottom line I think anytime the Gov. meddles in the economy, even with good intentions the long term affect is a disaster.

Bingo, Brian. If Uncle Sugar would stay out of the way and let the market work, we would be a heap better off.

[Shooterman]

Originally Posted by redtanker

I do think something like this can help stimulate the enconmy, I am not sure of the best way. But money in the pocket will be spent'

Yeppers, if it comes quickly enough, I'll certainly spend mine. On Gold!

[BrianK]

Originally Posted by Shooterman

Yeppers, if it comes quickly enough, I'll certainly spend mine. On Gold!

Right now gold is at a pretty good level [high] anything we might get will be invested in a quality company that has a decent quarterly dividend reinvestment in place. The capital gains factor over the last 10 years has been 680%.

I'm not against gold as a great hedge I just like the flexibility of instant access to investments. With online transfers & check writing as a feature of our accounts it's only a matter of seconds to convert stocks to cash.

I'll admit I haven't investigated that as an option with gold.