Economy gets its booster shot
The $168 billion package of personal tax rebates and business tax cuts will likely help shore up consumer spending later this year, economists say. That could minimize the pain of a possible downturn. But it won't resolve longer-term issues bedeviling the economy, such as a free fall in home sales and prices and a credit crunch that has persisted despite aggressive Federal Reserve interest rate cuts.
"A lot of Americans are worried about their economic future. ... Growth has clearly slowed," Bush said at a White House ceremony.
Also Wednesday, presidential hopeful Sen. Barack Obama, D-Ill., unveiled a long-term plan to spend $210 billion to create jobs in construction and environmental industries.
Economic growth stalls
The nation isn't in an official recession, but growth has slowed dramatically. The economy expanded at an anemic 0.6 percent annual rate in the final three months of 2007. The unemployment rate has ticked up from 4.5 percent to 4.9 percent.
The stimulus law aims to bolster consumer spending, more than two-thirds of economic activity, via rebates to Americans, from seniors on Social Security to more affluent earners.
People who had income of at least $3,000 in 2007 (wages, Social Security or disability payments) but paid little, if any, income tax, would be eligible for a rebate of $300 for an individual, or $600 for a couple.
Those who paid 2007 income taxes would get rebates of $600 to $1,200. Rebates phase out for individuals with more than $75,000 in adjusted gross income, and couples with more than $150,000. Those qualifying for a rebate are eligible for another $300 per child.
The White House hopes to start sending out rebate checks in May. A key issue is how much of the rebate money will be spent.
Consumers spent about two-thirds of rebate checks doled out in 2001, according to a study published by the National Bureau of Economic Research. Lower-income consumers were more likely to spend, not save, the money.
The authors argue the rebates of $300 or $600 per family played a big part in ending the eight-month-long recession, which concluded in November 2001 and is considered one of the most mild in U.S. history.
A number of economists say consumers are unlikely to spend as much this time around. In 2001, the rebates were accompanied by tax cuts, leading consumers to expect more money in their bank accounts over a longer period and making them more likely to spend, says Global Insight U.S. research director Nigel Gault.
Still, the economic consulting firm expects consumers will spend half the checks within the first year. "It's enough to make quite a substantial difference," he says. "The timing could be very good."
A recent survey of 1,000 consumers by the International Council of Shopping Centers and UBS Securities found 43 percent would use the money to pay off debt, 26 percent said they would save it and 24 percent said they would spend it. The rest said they will not be eligible for a rebate.
"Lenders will see the money before retailers," ICSC chief economist Michael Niemira says. "But still, about $25 billion will head into the spending stream, and that is positive."
Businesses get write-offs
The stimulus law also includes business provisions. Effective for 2008, companies with less than $800,000 in annual capital investments can write off the first $250,000. That's up from a prior limit of $128,000. Firms are also eligible to write off a "bonus" 50 percent of new investment this year. Dorothy Coleman of the National Association of Manufacturers says firms boosted investment after a similar measure in 2003.
"If a company is anticipating investing at some point in the near future ... this is a powerful incentive to do it in 2008," Coleman says.
Global Insight's Gault says the impact of the provisions will be "very, very little." Firms must still feel confident enough to spend the money.
Jason Furman, director of the Hamilton Project at the Brookings Institution, says Congress must still address issues like long-term unemployment. More than a million jobless workers will exhaust their benefits between now and June. Lawmakers should also step up efforts to aid homeowners who are falling behind on their mortgages, Furman says.
"The goal of the stimulus bill was to increase the deficit to expand overall demand," Furman says. "I don't think we should do another stimulus bill for the sake of the aggregate economy."
WBJ Web Partners
Most Recent
Most Recent
0 Comments