OK, can someone please explain how this "economic stimulus" works?

[Initech]

I can never get a clear answer on this. Some people say it's a loan on next year's tax return. Others say that there are no catches involved, that it's literally money for nothing (like the Dire Straits song). So what is it really?

[leftofthedial]

1. here's how it works . . .

give a few millions to ordinary citizens so they won't notice the billions you give to your rich financier buddies or the trillions you and your rich cronies stole

[jobycom]

9. We get the money, we spend it on higher gas prices, and the oil industry buys new jets with the cash

I think that's roughly it. It's an oil company wealth stimulus package.

[Nicole]

2. No catch

From the IRS FAQ about it.


Q. Is my stimulus payment taxable?

A. No. You will not owe tax on your payment when you file your 2008 federal income tax return.

http://www.irs.gov/newsroom/article/0,,id=179181,00.html

[ColbertWatcher]

3. Exactly like leftofthedial said...

...people get a few dollars extra, but they're not told they it is borrowed against next year's return. And it is nothing compared to what corporations and other million-billionaires are getting.

Plus, the amount could be better used to fix bridges, inspect food, provide healthcare to everyone, etc...

[Initech]

6. Ah, of course. The rich get richer and we get fucked.

I should have guessed. Crap like this makes me now realize why the French killed Louis XVI.

[ColbertWatcher]

11. We could learn a bit from the French...

...at least when it comes to protest.

They really do have it down to an art.

http://news.bbc.co.uk/2/hi/europe/596855.stm

http://www.guardian.co.uk/uk/2003/dec/11/france.world

http://news.bbc.co.uk/2/hi/europe/4819052.stm

[MadMaddie]

25. Oh there you go talking historical facts....

[SoCalDem]

4. not this time.. Last time was a "pre-refund" for the following year

but this time, it's not.. It's just a "gift" to you, FROM you (your tax dollars)

[MadMaddie]

5. The money they are using for the economic stimulus is

borrowed money from another country. China I think.

So someone is going to pay it back. I kinda liken it to a Payday loan, short term gain...long term pain.

[Initech]

8. So basically the economic stimulus works like a Viagra pill then?

A quick fix to the area that needs it, then you feel the side effects years later.

[MadMaddie]

26. That about sums it up.

[jobycom]

7. Damned if I can figure it out. It's an advance credit on your 2008 taxes.

It won't be taxed as income, but if I read it right, you will have to deduct it from any refund you are due next year.

Here's Bankrate.com's explanation:
Will I owe taxes on my rebate amount next year? What if this year my situation changes and that means my rebate amount should be less?

For most filers, says Luscombe, this year's rebate will appear as a simple gift from the government. The rebate amounts are tax-free.

But filers will have to reconcile any money they receive this year when they file their 2008 returns.

"It harks back to the 2001 situation when we got the new 10 percent bracket and got an advance check for that. Then on next return had to account for it," says Luscombe. "It's expected to be that way this time."

The 2008 tax forms should have a line for the new credit. When calculating taxes next year, taxpayers will have to subtract what they got as a rebate check the previous summer.

"Some people might think that's unfair," says Luscombe, "but they got the money, and they got it early."

One thing taxpayers won't have to worry about is giving back any excess if their 2008 taxes show that the advance this year was actually more than they should have received.

"If it turns out that credit on your 2008 return is greater, you get to take that additional amount," says Luscombe. "If it's lesser than what you got in 2007, you don't have to refund that back to government." The law says the IRS can't recover the extra payment by reducing your 2008 refund or adding to your 2008 tax bill.

[provis99]

10. geez. It really is like a PayDay loan, then.

Thanks for nothing, Bush.

[GoesTo11]

15. I can figure it out. It's not what you just said.

The rebate is officially supposed to be based on your 2008 income not your 2007 income.
But since the IRS only has your 2007 income data now, the rebates are being sent out as if you were going to have the same income in 2008 as you did in 2007. If for some reason you would really be entitled to a larger rebate than it looks like now, you'll get an additional check later. If for some reason you would really be entitled to a smaller rebate (because of a change in your 2008 income) then you get to keep the money.

The rebate will not be added to your future tax liability. It's not a loan that you personally have to pay back.

It is a loan in the sense that the government is just going to borrow $150B more to fund it. Then at some point in the future, tax dollars are going to have to be used to either pay off that debt or to pay more and more interest on it.

[jobycom]

16. Oh, I get it now. Thanks. I was trying to make it more complicated than it was.

It's just a tax credit on next year's income, paid in advance. Makes sense this morning, with your explanation. :)

[L. Coyote]

12. Sales are off. USG borrows money, gives to you, banks earn interest for 30 years

and it stimulates profiteering to gain investment capital to buy more government debt.

We the Suckers get to buy a little something, like groceries and shoes for the kids, and their kids will pay for it ten-fold.

[Juche]

13. I doubt it will work

The goal is to pump about $140 billion into the economy which will be spent on goods and services, creating jobs.

however my understanding is people intend to save about half their checks (people in financial trouble don't spend $600-1200 checks on luxury items), and a good deal of the rest is going to go to pay for products made in China and bought from walmart or bought from gas stations.

Sooo, about half the money gets saved, the other half will probably go to buying products like gasoline and Chinese manufactured goods. The only American jobs created will be a few walmart and gas station jobs IMO.

[jobycom]

17. The bigger problem than where the money goes is where it comes from.

It's a reduction of income for the government, since their only income is from taxation. Which means they have less money to pay their bills, which means they will have to borrow more, with interest, to pay their bills, since their is no corresponding spending cut.

Which means that overall the value of the dollar will go down, easily offsetting any benefits the consumer spending will give the economy. And one of these days, we will have to raise taxes to pay back our obscene debt, and since Reagan turned us into a debtor nation, things look bleak on whether we will even have enough resources to save ourselves.

Clinton bailed us out in 92. I don't think people realize just how pivotal the Clinton administration really was. Without his handling of the economy, the debt that Reagan ran up would have destroyed us by now. I'm only hoping that one of our current candidates can do the same, but we're playing Russian Roulette. One of these days our knight on a white stallion will turn out to be less than the miracle worker we need. Genius like Clinton's (Bill's) is rare, and I don't see it this time.

I think I'm going to squirell away my tax check, rather than spend it. Won't help much, but might help a little.

[krispos42]

14. It works like this:

You get a random check for a few hundred dollars, perhaps over a thousand dollars.

Sobbing with relief, you make a massive payment towards your massive credit card debt.

Credit card companies, flush with new cash, continue to give massive credit lines to 18-year-olds a day after their birthdays.

18-year-old spends their entire credit line on stuff, start off well on the path to perpetual high-interest debt.

Stores sell Chinese-made crap to 18-year-olds, massive profits for owners enable them to buy 200-foot yacht with helicopter pad..

Massive profits for Chinese manufacturers enable them to loan us more money to continue to deficit-spend.

By continuing to deficiet-spend, Republicans keep taxes on the rich low, which frees up plenty of money for rich people to donate to Republicans and Republican-leaning PACs to keep Republicans in office!

Ta-dah!

[GoesTo11]

18. It's not that bad an idea, but not that good either.

The theory is about like this:

Economic slowdowns aren't good in and of themselves. People who could be and want to be working productively end up with no work. That's no good. The stimulus increases economic activity to some extent, so there's more gainful employment. The stimulus borrows money (by selling bonds to China, etc.) Then, when the economy is chugging along and everyone's so busy that things start getting messy, that's a good time to pay the debt back (by reducing gov't spending or increasing taxes in that year). If everyone just decided to put the stimulus check in the bank, earn interest, then take it out later to pay the increased taxes necessary to pay off that debt (plus interest), it would all amount to nothing. But if some people really need the cash now and would spend it on things that are really worth getting (like car repairs so they can get to work, new computers so they can work more efficiently, things that improve health) and then pay it back later when they don't really need to spend the money as much anyway, then it's beneficial. If people get all excited and just use the money to just buy crap they don't need and then have higher taxes later to pay off the debt, then it does some harm - but at least we would get some stimulus out of it and more jobs now without losing many jobs later.

Finally, if people buy imported crap, then we don't even get any serious increase in jobs now, we do have to pay off the debt (or continued interest) later - and we may not have the luxury of doing that during boom times. Then the whole idea backfires. The economy is worse off for having done the stimulus. The only winners then are, as you say, people who can take credit for the short term gain and ignore the long term cost. The real problem is that our economy devotes too much to crap and not enough to useful spending. Building a serious national train system, improving early childhood education, caring for the uninsured, making beautiful parks, fixing existing infrastructure, etc. would all provide stimulus too. Not as easy to turn on and off as spending on flat screen TVs, but in the end these are good investments.

[krispos42]

19. That 160 billion....

would buy an awful lot of domestic solar panels, for example. Or vertical-axis wind turbines.

I found one 5 kW vertical-axis wind turbine on the internet, the entire thing including a masts costs about $15,000. And 5,000 watts is a LOT. Most homes are only wired for 10,000 watts maximum, and average useage is far less than that! And that's over a million units.

[GoesTo11]

20. Amen

That kind of investment would stimulate the economy now AND leave it stronger later. Now, if only someone had passed that stimulus package.

[Juche]

21. Yes it would

As was said so well earlier, we have an economy that seems fairly wasteful. We could easily create jobs by creating universal broadband, investing in scientific R&D (especially medical R&D), fixing our bridges and roads, building a high speed rail system on the east coast, etc. But we aren't doing that.

Obama & Hillary planned to spend about $21 billion a year for 10 years on renewable energy & infrastructure, claiming it'll create about 7 million new jobs.

The Apollo Alliance (a group that wants to invest in clean energy & obtain energy independence) claims a $30 billion a year for 10 year investment will create 3.3 million high paying jobs in manufacturing, save americans about $284 billion in lower energy costs and grow the economy 1.4 trillion.

Universal broadband can supposedly grow the economy $500 billion. Every dollar invested in early education create $2-18 worth of savings and improvements for society at large.

Any of these would be better than a stimulus package that people either save or spend on walmart and gasoline.

[Occulus]

22. Heh. I keep bringing it up- it's important-

the late Dr. Bussard had a design for a fusion reactor that apparently could truly work. The project was initially Navy funded. His lab continues the work, and needs something like $200M to build a functioning prototype.

Google "IEC fusion" or "polywell fusion" for a lot more information.

[krispos42]

23. That would solve basically everything

With limitless, on-demand, zero-pollution, zero-greenhouse-gas electricty, we convert all of our homes and building to electric heat and stop burning natural gas, propane, and home heating oil.

We could also make as much hydrogen as we need for either fuel-cell cars or internal-combustion hydrogen-burning engines. Just zap that water and bottle the hydrogen. Efficient? Not really, but with limitless electricty it doesn't have to be. Just clean.

Electricity to charge up electric cars, to distill ethanol... it would be nice indeed.

[KatyaR]

24. It doesn't work--

that's the problem.