Economists: The Stimulus Didn't Help

Although the economy appears to be recovering, a new survey was released yesterday asserting that a majority of the economists in the country believe the economic recovery had little to do with President Obama’s stimulus efforts. According to this CNN Money article, the latest quarterly survey by the National Association for Business Economics showed job growth for the first time in nearly two years.

NABE conducted the study by polling 68 of its members who work in economic roles at private-sector firms. About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House's Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.

That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending. More than two-thirds of those polled believe the measure won't affect payrolls, while 30% expect it to boost hiring "moderately."

But the economists see conditions improving. More than half of respondents -- 57% -- say industrial demand is rising, while just 6% see it declining. A growing number also said their firms are increasing spending and profit margins are widening.

Continue reading at CNN.com…

Stimulus Funds Going to Slashed Programs

From USAToday.com:

More than $3.5 billion in economic stimulus funds are going to programs that President Obama wants to eliminate or trim in his new budget.

The President released his budget this month and a USA TODAY review of stimulus spending reports shows the budget recommends getting rid of Army Corps of Engineers' drinking-water projects, which received $200 million in stimulus funds, and a U.S. Department of Agriculture flood-prevention program, which received $290 million.

The administration's budget plan says the corps and USDA programs are inefficient and duplicate similar but more effective work by other agencies. The proposed cuts indicate the programs “shouldn't have gotten money from the $862 billion stimulus package”, said Tom Schatz of the non-partisan budget watchdog Citizens Against Government Waste.

"It's certainly inconsistent, and it would have been better to have this realization a year ago," Schatz said. "But if inconsistency means they're going to cut the programs, it's OK. It's the other way around that bothers us."

The NEXT Economic Stimulus Package

While the country continues to focus on health care reform, and random events like last week’s “Balloon Boy” fiasco, advisors for the Obama Administration and leaders in Congress are quietly working on ways to further stimulate the economy. With unemployment rates continuing to climb, and a housing tax credit due to expire in a few weeks, there is pressure on the White House to do something else to help the economy. Since the Obama Administration asserts that their $787 billion stimulus package did prevent job losses, and helped the economy from falling further, many experts are predicting that they will support another type of stimulus program. To help the readers of my blog keep track of these new developments, I have put together the following article taking a deeper look at some of the suggestions being considered for this new stimulus package.

Not Really Another Package

One of the administration’s biggest priorities is to keep any new legislation from being labeled as another stimulus package. Why? Because it implies that the first package was unsuccessful, and taxpayers are not likely to support a second unsuccessful program. The Obama Administration claims that only part of the original $787 billion budget has been spent, and that the program will fund projects aimed at helping the economy for the next year. With the first stimulus package still on everyone’s mind, and a huge health care reform bill, it may be difficult to get the American public to support another huge government program. Therefore, it is likely that we will see a handful of smaller pieces of legislation signed into law to help improve the economy rather than one big, expensive stimulus package.

Extending the Homebuyers Credit

One of the first actions Congress will likely take is to extend the $8,000 first time homebuyers credit that is due to expire on November 30th. The program has been deemed successful by dozens of economists, and there are dozens of industries lobbying heavily for it to be extended. Some proposals even call for the credit to be offered to all homebuyers, as opposed to just those who have not owned a home within the past three years, and others even call for it to be increased to $15,000.

$250 Check to Social Security Recipients

Like I mentioned last week, President Obama has called on Congress to send another batch of $250 checks to recipients of Social Security benefits. Earlier in the year, checks were sent out to Social Security recipients as well as taxpayers enrolled in Veterans Administration, Railroad Retirement and Supplemental Security Income benefit programs as part of February’s $787-billion economic stimulus package. Since it was announced last week that there would be no increase in the amount of money people on Social Security receive this year, many are predicting that another one time payment will be made.

Extend Unemployment Benefits

With businesses making cuts, it is getting harder and harder for Americans to find new jobs, as such the average time it takes someone to find a new employer is now longer then the length of time they can collect unemployment benefits. Therefore it is likely that Congress will extend the amount of time people can collect their benefits. Some proposals in the House of Representatives aim to provide 13 additional weeks of benefits in states with jobless rates of 8.5% or higher, while the Senate is considering proposals to extend benefits in all states.

Health Insurance for Unemployed Workers

Earlier in the year, Congress passed an act that provided a 65% subsidy of COBRA health-insurance premiums for workers laid off between September 2008 and the end of this year. For those of you who may not already know, COBRA is the program that allows taxpayers to keep their health insurance benefits after they have been let go. Since the subsidy, enrollments in COBRA have doubled, and it is expected that Congress will extend this program into next year.

Incentives for Companies Hiring New Employees

The original stimulus package had a tax credit for employers hiring new workers, but it was removed before the bill was signed into law. Now members of Congress are considering a variety of proposals aimed at offering incentives for companies to hire new employees. There is a proposal in the Senate to offer a $4,000 tax credit to businesses that expand their payroll. However, there is a lot of criticism over these types of incentives, and I am not sure if any would ever become law.

Refunds for Losses

Last week it was announced that Speaker of the House, Nancy Pelosi was also considering a proposal from a Republican Congressman to allow companies that are losing money to use their losses to get refunds of taxes paid in the previous five years. Currently, most businesses can only use current losses to get refunds from the previous year. A similar proposal was included in an early draft of February’s stimulus package, but was dropped when it was discovered it would cost nearly $20 billion.

FACT CHECK: Obama 'Tax Hikes' a Matter of Words

From The Associated Press:

President Barack Obama says he would lower taxes on 95 percent of Americans now and raise them on the rich in 2011. Republicans say he will increase taxes for all and in the midst of a recession to boot.

So who's right?

Yes, all Americans would pay more under the president's policies. His own aides concede that.

But no, Obama would not raise taxes in the midst of a recession, as long as his economic assumptions bear out.

The president's budget lowers taxes immediately for middle- and low-income Americans — about 95 percent of working families. It also raises taxes starting in 2011 on households that earn more than $250,000 a year.

But Obama also would impose a tariff on industries that pollute. Obama's top budget and economic advisers say those costs will get passed along to consumers. A tax? Indirectly, yes. Felt by most Americans? Yes, again.

Republicans also have asserted that Obama's tax increases would occur in the midst of a recession, a bad idea when the economy needs consumers to spend more.

But the tax increases won't occur for two years. The tariff on greenhouse emissions won't generate revenue until 2012, according to the president's budget. Obama's economists are counting on being out of the recession by then, and the chairman of the Federal Reserve Bank has said "there is a reasonable prospect" that 2010 could be a year of economic recovery.

But Obama is ANNOUNCING tax hikes and fee increases in the midst of a recession. And that, Republicans say, is bad enough.

"People may read it as a tax increase, even if, effectively, it's not for 18 months, let's say," said Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee.

THE CLAIM: "The president's budget increases taxes on every American, and does so during a recession," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.

One-Time Tax Credit Offered By IRS

From MSNBC.com:

There's a one-time tax credit available for people who didn't get a full economic stimulus payment in 2008. If your circumstances have changed making you newly eligible, the recovery rebate credit may be worth pursuing.

The IRS will figure what the credit will be for individual filers or you can do the figuring yourself. Among those who might be eligible are families who had an additional child last year, and people who didn't have a Social Security number in 2007, but obtained one last year.

Unlike the stimulus payments that were made by check or direct deposit, the credit adds to the amount of a tax refund, or decreases the amount of taxes owed. The maximum payment was $600 per taxpayer, or $1,200 for those married filing jointly.

How About a Payroll Tax Stimulus?

From The Wall Street Journal:

Congress and the Obama administration seem near to deciding the details of an economic stimulus package. Unlike the efforts of President Ronald Reagan and President George W. Bush, who also inherited declining stock markets and shrinking economies, this package is heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates.

Today the Reagan tax cuts are widely viewed as successful. Opinions on the longer-term effects of the Bush tax cuts are more diverse, but the short-term effects of the 2001 and 2003 cuts are generally credited as having been well-timed.

And what of the plan being put forward now? As crafted, it is unlikely to produce the desired results. For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.

By contrast, the stimulus now under consideration would suffer from the usual problems of government spending. The Congressional Budget Office and the Joint Committee on Taxation have calculated that only $170 billion, or about one-fifth of the $816 billion package will be spent in fiscal 2009. An additional $356 billion will be spent in 2010. That leaves $290 billion to be spent when even the most pessimistic forecasters think the economy will be in recovery mode.

Obama Tax Cuts Likely Soon

From the Washington Post.com:

President-elect Barack Obama's economic stimulus plan will include an immediate tax cut for middle-class families, and the incoming administration hopes to enact permanent tax cuts soon thereafter, a senior adviser to Obama said Sunday.

David Axelrod said the stimulus package will be implemented soon, given the worsening economy, and could cost $675 billion to $775 billion. The massive recovery plan will seek to create or save 3 million jobs, he said in appearances Sunday on NBC's "Meet the Press" and CBS's "Face the Nation."

"Look, we feel it's important that middle-class people get some relief now," Axelrod said on "Meet the Press." Obama has "promised a middle-class tax cut," he added. "This package will include a portion of that tax cut that will become part of the permanent tax cut he'll have in his upcoming budget."

Giving people more spending money will "help get our economy going again," Axelrod said. He also said he is hopeful that the recovery plan will be ready for Obama to sign soon after his Jan. 20 inauguration.

Latest Good Reads

New CA tax to affect veterinary services?

They tax what?

10 ways to prepare early for the upcoming tax season.

Bailouts and economic stimuli: more...

Creative tax argument gets drowned.

Its not all doom and gloom.

Sustainability – the best defense against recession.

Navigating through change and landing on your feet!

Keeping track of business expenses.

How to Avoid Common Errors that Delay Stimulus Payments

In their newest press release, the IRS has identified a list of common mistakes that may have caused an delay in your receipt of an economic stimulus check. If you are expecting a check, but have still not received it, then be sure to carefully read the following list and check out the IRS’ “Where’s My Economic Stimulus Payment?” Web tool.

File only one tax return — People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the Oct. 15 deadline approaches for filing a return in 2008.

List qualifying income — Some people are listing their monthly income instead of annual income. People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly). The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay.

Review your tax liability — Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer’s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of “qualifying income” from specific sources, they would be eligible for $300 ($600 for married couples). There also is a $300 payment for each qualifying child.

Amended return — Generally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other “qualifying income.” While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009.

Use most current address — People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS.

The Tax Rebates were a Flop?

Although it may be a bit early to be making such a dramatic statement, Martin Feldstein of the Wall Street Journal has done so in an opinion piece.

“The evidence is now in and that optimism was unwarranted. Recent government statistics show that only between 10% and 20% of the rebate dollars were spent. The rebates added nearly $80 billion to the permanent national debt but less than $20 billion to consumer spending. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity.

These conclusions are significant for evaluating the likely impact of Sen. Barack Obama's recent proposal to distribute $1,000 rebate checks to low- and middle-income workers at an estimated cost of approximately $65 billion. His plan, to finance those rebates with an extra tax on oil companies, would reduce investment in refining and exploration, keeping oil prices higher than they would otherwise be.

Here are the facts. Tax rebates of $78 billion arrived in the second quarter of the year. The government's recent GDP figures show that the level of consumer outlays only rose by an extra $12 billion, or 15% of the lost revenue. The rest went into savings, including the pay-down of debt.

For a more comprehensive picture, we can see how households divided their overall increase in disposable personal income -- that is, household income including the rebates and net of income taxes and payroll taxes -- between additional consumer outlays and saving. The official GDP figures show that disposable personal income increased between the first and second quarters by some $98 billion (one-fourth of the annualized figure of $393 billion shown in the government report), up from an increase of $22 billion between the final quarter of 2007 and the first quarter of 2008. So disposable personal income rose by an additional $76 billion, a bit less than the rebates because of declining employment and reductions in other sources of income. The corresponding rise in consumer outlays increased to $36 billion from $24 billion. So the additional $12 billion of consumer spending was less than 16% of the extra $76 billion of disposable personal income. By comparison, savings rose by $62 billion, or five times as much.”

Feldstein does present valid information. However, I think it is still probably too early to see the entire affect of the economic stimulus package. Taxpayers who used the money to pay-down debt will likely have more spending money in the next few months.

Latest Good Reads

Income inequality: CBPP study finds declining equality, while tax system shows "dramatic" reduction in progressivity.

Why not pay off. debt?

That was the economic stimulus check?

"Restricted management account" discount ignored.

Why real estate is the best investment.

Top ten most unusual resume fibs.

What to look for when buying an online business.

IRS Has Answers to Stimulus Package Questions

Yesterday the IRS put out this press release announcing that they had put together a list of answers to the most common questions about the economic stimulus package. Below are some of the questions and answers, but to see the full page check out Economic Stimulus Payments: Most Frequently Asked Questions on IRS.gov.

Q. When will I get my payment?
A. Payments are going out now for those returns processed by April 15 and will continue on a weekly schedule through mid-July. See the payment schedule for both direct deposit and paper checks for further information. Payments will continue through 2008 for returns filed after April 15.

Q. I filed after April 15 and the payment date for my Social Security number has passed. How long will it take for me to get my stimulus payment?
A. It will generally take a minimum of six weeks after you file your return to get your stimulus payment.

Q. Will the IRS allow me to provide it with direct deposit information, if I did not include that information on my original tax return?
A. You cannot correct direct deposit information or request a direct deposit after a return has been filed.

Q. Is there something I can do to prevent my stimulus payment from being automatically deposited into the account that I identified for the direct deposit of my regular refund?
A. Generally, if you designated direct deposit on a tax return, the stimulus payment will go to the account number you designated. If the account number is no longer active, the IRS will send you a paper check. This process may take several weeks.

Economic Stimulus FAQs

There has been a lot of confusion lately about the recently passed economic stimulus package. To help sort out the bewilderment about these rebate checks, the tax professionals at the Roni Deutch Tax Help Blog have composed answers to the following rebate related FAQs.

1. How are the rebate amounts determined?
2. How will the "reduced rebate" work?
3. Who will qualify to receive a "reduced rebate"?
4. Who will NOT qualify to receive a rebate?
5. Do I need to apply for the rebate?
6. What if I only have Social Security income and no tax liability?
7. When will I get my check?
8. What if I filed as Head of Household or Married Filing Separately?
9. Will the rebate delay or impact my 2007 tax refund?
10. Will I be taxed on my rebate check?
11. Will this rebate cut into my 2008 refund?

You can check out the full entry, including answers, by check out Economic Stimulus Package: Clearing Up Any Confusion on the Tax Help Blog.