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The $400 Stimulus Payments Could’ve Been Dumber

This article was written by in Economy. 23 comments.

The American Recovery and Reinvestment Act of 2009 includes, along with all the spending, the biggest middle-class tax cut in American history. Ignoring all the stuff about housing and small businesses and car sales, this will mean a yearly saving of $400 for individuals, or $800 for couples.

It’s not a lot of money. People who are better at math than me have calculated it’s about $13 a week that people otherwise wouldn’t have had. That amount means more to some people than it does to others. We’ve certainly seen in the comments at Consumerism Commentary how people who have to, can stretch dollars quite far.

It’s a small consolation, however, to realize that this “biggest middle-class tax cut in American history” is being enacted more wisely than the tax cuts we’ve seen since 2001. Namely, it’s happening at the paycheck level. The IRS is just going to start withholding less for the people who receive the tax cut, instead of sending out $400 stimulus checks.

We’re going to be saving a lot on paper and postage, not to mention the fact that we won’t be sending out an additional letter before the check, explaining that the check is on its way.

I did say it was a small consolation.

Published or updated February 18, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 23 comments… read them below or add one }

avatar Ben

I’ll take it. It’s not the billions the others made out with [which I'll have to pay back sometime in the future]. Maybe if it helps stimulate the economy and I gain back some of the $50,000 I lost in the market I’ll take it.

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avatar Luke Landes ♦127,615 (Platinum)

While I hear a lot of complaints that the small amount per paycheck is too small to make a difference in the economy, the truth is the opposite. Since extra money is “buried” with what you already receive, the extra money is incorporated into your daily spending (or saving) more often that receiving a lump sum payment. On average, of course, because everyone is different.

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avatar derringer

I really don’t agree with this common misconception that, somehow, getting your stimulus in small portions every week is better than getting a lump sum.

I mean, if my financial advisor told me that I would be getting a lump sum payment or equal monthly payments, and I had my choice, on some annuity, why in the hell would I opt to get it more slowly every week for a year instead of as a lump sum?

Someone really needs to check their thinking if they somehow think that because of some study on human behaviour that this is somehow better than receiving it as a lump sum, then they are really living in a dream world.

Have we really gotten so elitist as a people and as a government that we are going to try and ‘trick’ people into having more money to spend to spur the economy, seriously?

This is just unbelievable to me that this could possibly be considered ‘better’ than receiving it as a lump sum. I don’t think either amounts to a hill of beans, to be honest, nor do I think its a fantastic idea given the major problem being declines in housing values, and the new stimulus bill doing nothing to help that, save those who are simply in homes they can’t and never could have afforded (middle class families that do not qualify and are barely staying out of foreclosure, for instance, should also be targetted by any of these ‘plans.’)

But, back to the point of this post… Is this really a new trend in government and how we think about dealing with crisis? That we assume that the people we are trying to help are stupid? I mean, we have to trick them into spending the money we give them? And, quite honestly, if we are giving people who are in financial trouble money via stimulus, don’t you think they *should* be shoring up their debt situation instead of spending it frivolously? Somehow we forget that in trying to ‘encourage spending’ for the economy, but it is no less true..

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avatar Smithee ♦1,358 (Quarter)


You have some reasonable and passionate views on the stimulus money, and I’ll let other readers debate it with you, but I wanted to point out that the crux of my article was that we’d be saving money by avoiding mailing a paper check, and the advance letter that goes with it.

We’re saving millions of dollars by not doing that. That was really my whole point.

Could the IRS have engineered things so that maybe we’d get the benefit of the stimulus money over, say, two months instead of twelve? I’m not sure.

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avatar derringer

Thanks for the response, Smithee… I have followed your blog for sometime, and did not mean to imply that it was your opinions that I take issue with.

In actuality, I have read this line of thinking on how this is a ‘better’ way to distribute a stimulus across a few different forums, and I had to voice my opinion on it. I hope it was ‘on-topic’ enough to be relevant, and welcome a mature debate on the subject…

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avatar Compounding

Hey, here in my local county, they were doing a property tax rebate, and they spent $100K to send out letters stating that we would receive these rebates. And what was really stupid is that we were going to receive these rebate checks two weeks before our next property tax payments were going to be issued. They tried getting it turned into a credit for our next property tax payment, but enough people on the city-county council thought that was a bad idea….

I will refrain from mentioning the party that was in the majority on our council when this happened, for fear of repercussion by our new federal overlords :)

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avatar TheMightyQuinn

My income is all 1099 (i.e. no withholding), how does this affect me? Does this just mean I’ll have less taxes due April 2010?

It’s also my understanding that Obama is going to let Bush’s tax cuts expire, thus increasing our taxes in 2011. So what is the point of tax cuts now when they’re going to raise them anyway?

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avatar Smithee ♦1,358 (Quarter)

TheMightyQuinn said: “It’s also my understanding that Obama is going to let Bush’s tax cuts expire, thus increasing our taxes in 2011.”

That depends entirely on how high your taxable income is. If everything from the campaign turns out to be true, if your taxable income (which is different from how much you earn) is more than $250,000 for the year, then your tax rate goes from 36% to 39%.

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avatar Laura

Yes but now the government will have to reprint and mail out the employee withholding schedules that small employers use to figure up those weekly paychecks. This is why it will take a few months to see that $13. It goes both ways.

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avatar thomas

Time to buy McDonald’s stock. The dollar-aires are going to be going crazy with this new windfall of funds.

What is saving millions of dollars (and I’m pretty sure the gov’t shouldn’t have to pay for stamps) with a package that costs nearly a trillion dollars? Not really a winning point if you ask me.

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avatar JC

A stimulus “package” of $13 weekly! You’ve got to be kidding? Well, so much for getting our economy back on track. Let’s start laughing at “our” new president, NOW! And to think alot of people actually have “faith” in Obama. What a joke! As for giving stimulus “packages” to “businesses”…if people don’t have money to spend in these businesses, what good will their stimulus packages do them. One thing that it WILL do, it will slow down their imminent death. Wasted money! Yes sir, Democrats have a “better idea”, yeah RIGHT!

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avatar TheMightyQuinn

@ JC:
The question is would anything be different if McCain won? I think if he had, it would be Republicans fighting for spending (except for a few true conservatives), and a majority of Democrats opposing it.

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avatar pgf26791

My question is: Is this $13 a pre-tax figure or after taxes have been taken out? Because if it’s pre-tax, why bother? Actually, why bother either way?

In my opinion, it’s putting out a huge amount of money as a whole, but spread too thin to do anyone any real good.

Good intentions, but as I watch the electric bill and water bill steadily climb and the figures at the gas pump follow suit – not to mention the cost of food, etc., it comes to me that the ‘stimulus’ won’t even make a dent as it glides through my pocket on its way to oblivion.

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avatar Luke Landes ♦127,615 (Platinum)

pgf: After tax. The primary reason for spreading the stimulus out rather than providing it in a lump sum is because it is more likely to be incorporated into daily/weekly spending this way… and this would have a stronger effect on the economy over time than a lump sum that is dumped into savings or debt repayment at one time (when banks aren’t increasing lending). Lump sum direct-to-taxpayer stimuli didn’t work well for the greater economy in 2008 or in 2003.

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avatar PayRollFan

Has it been considered that those two-earner families who currently have one spouse claiming single on their W-4, and one claiming married on theirs, that they will actually incorrectly net $1,200 instead of the appropriate $800 amount? Of course, one might say that they are probably not being withheld correctly anyway if they have their W-4′s established this way but file Married on their 1040…this is true but many that I know have had their W-4′s set up this way for years and have worked out their expected refunds (or underpayments) based on historical experience. Now that we are talking about adding an extra $400 “credit”, not “deduction”, it seems there should be more warning about this…maybe it’s out there and I just haven’t seen it?

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avatar Luke Landes ♦127,615 (Platinum)

That’s exactly right. Your employer can only guess about your living and income situation based on your filing status on your W-4. If you pull in extra income from an outside job, your employer won’t withhold the right amount of money. If you and your spouse both work, your withholding won’t be right. It’s up to the *employee* to manage withholding or face owing extra money when filing taxes.

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avatar Amphritrite

I can see that the administration is -trying-, but trying only really counts when you’re about four years old playing tee ball. Honestly, if it were me, I’d rather have $400 tacked onto my 2009 tax return or given in a lump sum at some part of the year. I’m more likely to spend it on something my house needs or something I’ve been waiting for (therefore, stimulating the economy) than I am with $13 extra a week.

And actually, when you take that $400 and divide it by the 24 paychecks I receive a year, I’m getting $16.66–> extra a paycheck, which is $8.33–> per week. Woot.

Yeah. That extra $8 is just going to be snowballed into my savings account. Thanks, Uncle Sam.

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avatar Steven

I am trying to figure out how this will affect 2009 taxes. Please correct me if I am wrong on this issue.

The tax tables stay the same. If the government withholds less money then anyone who received (~400 for single or ~800 for married) this year on there taxes will most likely receive nothing next year since they are withholding less and the tax tables have not changed?

If that is true then people who received less than the said amounts will actually owe next year if they have less withholdings?

The stimulus for 2008 was a credit for 2008 taxes. This did not affect your taxable income and was only a credit.

If I am correct above, then we are going to have many unhappy Americans when it comes to doing their 2009 taxes.

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avatar Holly

Does any regular “Joe” anywhere truly understand this stimulus? I had read somewhere that this was merely an adjustment to your withholding and that, if your employer was already withholding just enough so that you would neither owe add’l taxes nor receive a tax refund next April (essentially “break even”), that this stimulus could cause you to owe more taxes in April. Based on what these comments and the article above state, the whole withholding TABLE has changed, so unless you and your spouse are both subject to the change in withholding (double stimulus)and don’t remedy the overpayment, THEN you will have to deal with the overpayments come April.?
HELP, tax people! Why couldn’t the Feds just give us a lump-sum credit, taken out monthly until December and save us from ourselves!!!?

BTW, Steven– just as I understand it, and just in case you wanted to know– the 2008 Recovery Rebate Credit is being called a Credit because if you didn’t qualify for the credit last year at taxtime to receive that big, honkin’ check (i.e., maybe because you made too much $$), but then in the latter part of 2008 you were able to qualify (maybe ’cause you lost your job in the fall, for example, like so many of us did), then you can take the Credit now when filing 2008 taxes (not in the form of a check this time, but as a credit on your taxes).

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avatar melinda

I am married and have 3 kids my husband and i both work he claims dependents I on the other hand do not..When we ask the accountant at my job if they took no federal taxes out of my check because that is what is happening to almost every person i work with is this going to make us owe money when we do our taxes 2009??? Does anyone know the effects this is going to have on our returns..???

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avatar Steven


The way I understand it is this:

The stimulus is giving ~400 a person or ~800 a couple because of witholding less. This just means they are witholding ~35 less a month on average. The tax tables stay the same as of now, so instead of paying 5000 a year in taxes you would pay 4600 (for example).

To determine if you will owe then you need to know what you payed or received back for your 2008 taxes. If you and your husband, received ~800 back this year then you may be around 0 or owe a few dollars. You also have 3 children, so you get 3000 for child tax credit (until they turn 17) and there are many other deductions you may have (like using Sched A, etc.) It is easier to figure out for the single couples, but basically if you normally receive 1000′s back you will not owe.

If you think you will earn a significant amount of more money this year then you may want to do a quick evaluation of your estimated taxes. If you go to irs.gov you can look at the tax tables for 2008. After all your deductions, which should be close to the same (unless you have different deductions expected) you can see what you need to pay this year in taxes if you are not sure.

The people that will be affected are the ones that get back less than 400 a person or 800 a couple. If you normally owe taxes then expect to owe even more.

Unlike the 2008 stimulus, this stimulus is not a credit to you, just a little more money in your pocket in the year (like you are claiming more dependents than before).

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avatar Jessie

The only thing this ‘stimulus’ did was cover the raise in my monthly rent. So, no additional spending from that huge amount given to us. Real productive.

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avatar Elsie

Since the IRS is withhholding $400 less from my paycheck for taxes, it means I will be getting $400 less in my refund next year, isn’t that so? If that is the case, this $400 is not free. I hope I am wrong.

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