If President Obama’s economic stimulus plan is signed into law is it currently stands, individuals stand to receive a tax credit of $500 and couples stand to receive a tax credit of $1,000. Provided you’re not disqualified for earning too much money, $75,000 for an individual or $150,000 for a couple. Taxpayers might receive this credit either by claiming a credit on the 2009 and 2010 tax returns or by reducing withholding from paychecks.
There is little hard evidence that last year’s stimulus payment helped the economy. In fact, it has done more to confuse and anger taxpayers who now believe they are required to return the stimulus payment to the government, a widespread misunderstanding thanks to the way the Congress decided to facilitate the credit.
While I explained that in whole the 2008 economic stimulus payment would not affect tax returns, astute people who file their taxes online or use software to calculate what they owe or receive have noticed that changing the amount in the line for the recovery rebate credit affects the amount of their refund or payment due.
There’s a simple explanation: If I tell you I’ll give you and nine of your friends $100 next year, but then offer to give you and only eight of your friends that $100 this year to provide a head start in spending that money, you can’t come to me next year and get that $100 again. You have one friend that will get to collect the $100 next year, but you and your nine friends who received the early check don’t receive it again.
An additional new tax credit created with the possibility of receiving a partial or complete payment in advance will cause more confusion when it comes time to file 2009 tax returns.
For me, another $500, especially if spread over two years, will have absolutely no effect on my consumerist spending tendencies. I would save the money, not spend it or pay off debt. You could argue that those of us who save the money are just passing along funds from the government to banks, but banks can’t use customer’s deposits the same way they can use a cash infusion directly from a government bailout.
Will a $500 or $1,000 “stimulus” affect your ability or desire to save, pay off debt, and spend?
February 13 Update: The Senate and House of Representatives have both passed the compromise version of the stimulus bill. Read the complete stimulus bill here, and you’ll be a step ahead of many of the congressmen who didn’t have a chance to read it before voting.