Federal Income Tax Rebate

On January 18, 2008, President Bush signed a federal income tax rebate plan or stimulus plan, as it is better known. This plan was for a $168 billion boost for the economy. The rebate checks will be mailed out to taxpayers and will be paid out like this: $600 for individuals, $1,200 for couples and $300 for each dependent child. Veterans that received over $3,000 in benefits last year will receive $300 for individuals and $600 for a couple. People that are receiving SSI will not be getting a federal income tax rebate.

This federal income tax rebate also raises funds for Fannie Mae and Freddie Mac housing. The plan saves businesses $50 billion by allowing then to deduct an extra 50% off of new equipment purchases and by increasing spending for small businesses.

Is this federal income tax rebate all that it is cracked up to be? As with everything else this has it’s pro’s and con’s. Let’s take a look at some of them now.

The economic stimulus is about 1% of Gross Domestic Product (GDP), which is large enough to impact the $13 trillion dollar economy. Many experts agree that this stimulus package will lift consumer spending. When a low-income family is given a few hundred dollars that they would not normally have, the chances are that they will most likely spend it instead of saving it. There are things that they need and bills that they have to pay and that is what the government wants people to do so they will help give the economy a boost.

The business tax will give businesses the incentive to spend more money. This will mean more jobs and another boost to the economy by knocking out some of the unemployment rate.

Each rebate dollar spent will generate $1.19 in additional GDP. This is a much better return on the money than past tax cuts, which have only reduced the GDP 59 cents for each additional dollar spent.

Some of the con’s are that the checks will arrive for taxpayers in the summer, which means that is too late for them to use them to catch up with the things that they are getting behind on now. So, by the time they get the checks they will have to use the money to play catch up instead of using the checks to get the things that they need.

This federal income tax rebate may not be the best way to stimulate the economy. A study done by Economy.com shows that the best way to stimulate the economy will be to increase unemployment benefits, which produces $1.73 in demand for every dollar spent.

Tax cuts that are not balanced will only lead to a larger budget deficit. This will lead to a weaker dollar, higher oil and gas prices, and inflation. This would hamper the feds ability to lower interest rates this year, which may need to happen if the economy does not improve.

Is it going to be enough to give the economy the boost the government is looking for, or will this be a negative effect on the already troubled economy. I guess we will just have to wait and see. Many Americans are looking forward to this federal income tax rebate, and have already decided how they are going to spend it.