Economic Stimulus Act of 2008
Encyclopedia
The Economic Stimulus Act of 2008 was an Act
of Congress
providing for several kinds of economic
stimuli intended to boost the United States economy
in 2008 and to avert a recession
, or ameliorate economic conditions. The stimulus package was passed by the U.S. House of Representatives
on January 29, 2008, and in a slightly different version by the U.S. Senate
on February 7, 2008. The Senate version was then approved in the House the same day. It was signed into law on February 13, 2008 by President Bush with the support of a majority of Democratic lawmakers, as well as a minority of Republicans. The law provides for tax rebates to low- and middle-income U.S. taxpayers
, tax incentive
s to stimulate business investment, and an increase in the limits imposed on mortgages
eligible for purchase by government-sponsored enterprises (e.g., Fannie Mae and Freddie Mac). The total cost of this bill was projected at $152 billion for 2008.
Those with no net tax liability were still eligible to receive a rebate, provided they met minimum qualifying income of $3,000 per year. Rebates were phased out for taxpayers with adjusted gross income
s greater than $75,000 ($150,000 for couples filing jointly) in 2007. For taxpayers with incomes greater than $75,000, rebates were reduced at a rate of 5% of the income above this limit. Individuals who were claimed as dependents by another taxpayer were not eligible for the rebates.
The $3,000 of qualifying income includes earned income (e.g., wages, self-employment income, Social Security), however Supplemental Security Income does not count as qualifying income for the stimulus payment. Also, low-income workers are required to file a return to receive the payment, even if they would not be required to file for income tax purposes.
Some taxpayers who exceed the income limits, but have qualifying children, will still get a rebate. For example, a single parent whose 2007 adjusted gross income was $90,000, pays more than $600 in 2007 taxes and has two qualifying children will receive a rebate of $450. The IRS adds together a $600 rebate for the parent and $600 for the two children to get $1,200, then subtracts the phaseout reduction of $750 ($50 for each $1,000 income above $75,000) to get $450.
According to the IRS, the stimulus payment did not reduce taxpayers' 2008 refunds or increase the amount owed when filing 2008 returns.
The payment schedule is based on whether the taxpayer's 2007 tax return listed direct deposit information as well as the last two digits of the social security number of the tax return's main filer, with direct deposits being sent between May 2 and May 16, and paper checks being sent between May 16 and July 11. On April 25, 2008, President Bush announced that the rebates will start going out on April 28, 2008 and the paper checks will be sent out starting on March 28, earlier than previously announced by the IRS.
Taxpayers who used direct deposit for their refunds will receive the stimulus payment that same way, provided they have not done any of these things:
If any of these scenarios apply, the payment will be sent as a paper check through U.S. mail.
Chairman Ben Bernanke
testified before Congress that quick action was needed to stimulate the economy through targeted government spending and tax incentives. Congress moved rapidly to pass such legislation. In passing the legislation, lawmakers aimed to stimulate spending by businesses and consumers during 2008. They hoped that the targeted individual tax rebates would boost consumer spending and that targeted tax incentives would boost business spending.
Lawmakers raised the limits on conforming mortgages eligible for government insurance and GSE purchase in response to the subprime mortgage crisis
. This crisis had resulted in a widespread credit crunch
by late 2007. The credit crunch led to a reluctance by lenders to issue so-called jumbo mortgages
for the purchase of houses that exceeded the FHA and GSE limits. The United States housing bubble
had pushed house prices above those limits in many areas of the country. As interest rates rose for jumbo mortgages, fewer buyers could afford them, and house prices were being forced down toward the limits for conforming mortgages. By raising those limits, lawmakers hoped to slow or halt the decline in house prices, which threatened the financial well-being of homeowners, banks and other financial entities holding jumbo mortgages.
The FHA loan limits also went up with the stimulus package on March 6. The loan limit package is called "FHA Forward."
.
(ITIN) instead of a social security number
. For example, if a family of five had one parent with an ITIN, no money is payable to any member of the family, including US citizens with valid social security numbers. The rule was added after the Federation for American Immigration Reform
(FAIR) lobbied the Senate for the change. The amendment was proposed by Senator John Ensign
of Nevada.
As a result, many legal resident aliens
and overseas military
families did not receive any payment. US citizens who did not receive payments included those who filed a joint tax return for 2007 and included an individual taxpayer identification number, or ITIN, on the document. In this case the entire family was ineligible for the economic stimulus rebate President Bush announced in 2008. At least one million legal residents and tens of thousands of troops were affected by the law, which was designed to keep illegal immigrants from getting stimulus checks.
Act of Congress
An Act of Congress is a statute enacted by government with a legislature named "Congress," such as the United States Congress or the Congress of the Philippines....
of Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
providing for several kinds of economic
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
stimuli intended to boost the United States economy
Economy of the United States
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation...
in 2008 and to avert a recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
, or ameliorate economic conditions. The stimulus package was passed by the U.S. House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
on January 29, 2008, and in a slightly different version by the U.S. Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
on February 7, 2008. The Senate version was then approved in the House the same day. It was signed into law on February 13, 2008 by President Bush with the support of a majority of Democratic lawmakers, as well as a minority of Republicans. The law provides for tax rebates to low- and middle-income U.S. taxpayers
Taxation in the United States
The United States is a federal republic with autonomous state and local governments. Taxes are imposed in the United States at each of these levels. These include taxes on income, property, sales, imports, payroll, estates and gifts, as well as various fees.Taxes are imposed on net income of...
, tax incentive
Tax incentive
A tax incentive is an aspect of the tax code designed to incentivize, or encourage, a certain type of behavior. This may be accomplished through means including tax holidays, tax deductions, or tax abatements...
s to stimulate business investment, and an increase in the limits imposed on mortgages
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
eligible for purchase by government-sponsored enterprises (e.g., Fannie Mae and Freddie Mac). The total cost of this bill was projected at $152 billion for 2008.
Tax rebates
Tax rebates created by the law were paid to individual U.S. taxpayers during 2008. Most taxpayers below the income limit received a rebate of at least $300 per person ($600 for married couples filing jointly). Eligible taxpayers received, along with their individual payment, $300 per dependent child under the age of 17. The payment was equal to the payer's net income tax liability, but could not exceed $600 (for a single person) or $1200 (married couple filing jointly). Net liability can be found in these locations:- Form 1040: line 57 plus line 52
- Form 1040A: line 35 plus line 32
- Form 1040EZ: line 10
Those with no net tax liability were still eligible to receive a rebate, provided they met minimum qualifying income of $3,000 per year. Rebates were phased out for taxpayers with adjusted gross income
Adjusted Gross Income
For United States individual income tax, taxable income is adjusted gross income less allowances for personal exemptions and itemized deductions. Adjusted gross income is total gross income minus specific items laid out in the tax code...
s greater than $75,000 ($150,000 for couples filing jointly) in 2007. For taxpayers with incomes greater than $75,000, rebates were reduced at a rate of 5% of the income above this limit. Individuals who were claimed as dependents by another taxpayer were not eligible for the rebates.
The $3,000 of qualifying income includes earned income (e.g., wages, self-employment income, Social Security), however Supplemental Security Income does not count as qualifying income for the stimulus payment. Also, low-income workers are required to file a return to receive the payment, even if they would not be required to file for income tax purposes.
Some taxpayers who exceed the income limits, but have qualifying children, will still get a rebate. For example, a single parent whose 2007 adjusted gross income was $90,000, pays more than $600 in 2007 taxes and has two qualifying children will receive a rebate of $450. The IRS adds together a $600 rebate for the parent and $600 for the two children to get $1,200, then subtracts the phaseout reduction of $750 ($50 for each $1,000 income above $75,000) to get $450.
According to the IRS, the stimulus payment did not reduce taxpayers' 2008 refunds or increase the amount owed when filing 2008 returns.
The payment schedule is based on whether the taxpayer's 2007 tax return listed direct deposit information as well as the last two digits of the social security number of the tax return's main filer, with direct deposits being sent between May 2 and May 16, and paper checks being sent between May 16 and July 11. On April 25, 2008, President Bush announced that the rebates will start going out on April 28, 2008 and the paper checks will be sent out starting on March 28, earlier than previously announced by the IRS.
Taxpayers who used direct deposit for their refunds will receive the stimulus payment that same way, provided they have not done any of these things:
- Taken out a refund anticipation loanRefund Anticipation LoanA refund anticipation loan is a short-term consumer loan secured by a taxpayer’s expected tax refund, and designed to offer customers quicker access to funds than waiting for their tax refund...
or "rapid refund"; - Used a service such as TurboTaxTurboTaxTurboTax is an American tax preparation software package developed by Michael A. Chipman of Chipsoft in the mid-1980s. TurboTax became an Intuit product as a result of the 1993 acquisition of its creator, San Diego-based Chipsoft. Chipsoft, now known as Intuit Consumer Tax Group, is still based in...
and had the transmission fees taken out of the refund amount; - Had their refund deposited across two accounts;
- Allowed their tax preparer (such as a CPACertified Public AccountantCertified Public Accountant is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA...
) to deduct their fee from the refund amount.
If any of these scenarios apply, the payment will be sent as a paper check through U.S. mail.
Rationale
As 2008 began, economic indicators suggested an increased risk of recession. Federal ReserveFederal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
Chairman Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....
testified before Congress that quick action was needed to stimulate the economy through targeted government spending and tax incentives. Congress moved rapidly to pass such legislation. In passing the legislation, lawmakers aimed to stimulate spending by businesses and consumers during 2008. They hoped that the targeted individual tax rebates would boost consumer spending and that targeted tax incentives would boost business spending.
Lawmakers raised the limits on conforming mortgages eligible for government insurance and GSE purchase in response to the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
. This crisis had resulted in a widespread credit crunch
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
by late 2007. The credit crunch led to a reluctance by lenders to issue so-called jumbo mortgages
Jumbo mortgages
In the United States, a jumbo mortgage is a mortgage loan in an amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from...
for the purchase of houses that exceeded the FHA and GSE limits. The United States housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
had pushed house prices above those limits in many areas of the country. As interest rates rose for jumbo mortgages, fewer buyers could afford them, and house prices were being forced down toward the limits for conforming mortgages. By raising those limits, lawmakers hoped to slow or halt the decline in house prices, which threatened the financial well-being of homeowners, banks and other financial entities holding jumbo mortgages.
The FHA loan limits also went up with the stimulus package on March 6. The loan limit package is called "FHA Forward."
Impact
One study compared the spending patterns of households that received their stimulus payments early on with the spending of patterns of households who had not yet received their payments. The researchers found that the stimulus checks increased spending by 3.5%. The study suggests that the rebate payments were an effective stimulus despite the predictions of certain economic theories such as the permanent income hypothesisPermanent income hypothesis
The permanent income hypothesis is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term...
.
Immigration Restrictions
Taxpayers who filed their returns jointly are not eligible for payment if any of the persons on the tax return filed with an Individual Taxpayer Identification NumberIndividual Taxpayer Identification Number
An Individual Taxpayer Identification Number is a United States tax processing number issued by the Internal Revenue Service. It is a nine-digit number that begins with the number 9 and has a range of 70 to 99 in the fourth and fifth digit, example 9XX-70-XXXX or 9XX-99-XXXX...
(ITIN) instead of a social security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
. For example, if a family of five had one parent with an ITIN, no money is payable to any member of the family, including US citizens with valid social security numbers. The rule was added after the Federation for American Immigration Reform
Federation for American Immigration Reform
The Federation for American Immigration Reform is a non-profit tax exempt educational organization in the United States that advocates changes in U.S. immigration policy that would result in significant reductions in immigration, both legal and illegal...
(FAIR) lobbied the Senate for the change. The amendment was proposed by Senator John Ensign
John Ensign
John Eric Ensign is a former United States Senator from Nevada, serving from January 2001 until he resigned amid an investigation of an ethics violation in May 2011...
of Nevada.
As a result, many legal resident aliens
Resident Aliens
Resident Aliens: Life in the Christian Colony is a 1989 book by Stanley Hauerwas and William Willimon which argues that Christian churches should focus on developing Christian life and community rather than attempting to reform the secular culture...
and overseas military
Military
A military is an organization authorized by its greater society to use lethal force, usually including use of weapons, in defending its country by combating actual or perceived threats. The military may have additional functions of use to its greater society, such as advancing a political agenda e.g...
families did not receive any payment. US citizens who did not receive payments included those who filed a joint tax return for 2007 and included an individual taxpayer identification number, or ITIN, on the document. In this case the entire family was ineligible for the economic stimulus rebate President Bush announced in 2008. At least one million legal residents and tens of thousands of troops were affected by the law, which was designed to keep illegal immigrants from getting stimulus checks.
External links
- The text of the act
- Stimulus Payments: Answers to Frequently Asked Questions
- Unclaimed Economic Stimulus Payments, "GovGab", U.S. government blog, August 4, 2008