Fiscal Fact No. 118
Note: Numbers have been updated to reflect clarifications regarding income concept used for phase-out range.
The Administration and the Congress have hammered out the major components of a fiscal stimulus package to shore up the flagging economy. The $150 billion package includes two broad provisions: 1) cash payments to most workers with a supplement for those with children, and, 2) bonus depreciation for new business investment in equipment. The cash payments would total roughly $100 billion, while the bonus deprecation provision would fill out the remaining $50 billion of the package.
The cash payment would be $300 for individual workers and $600 for working couples with at least $3,000 in earnings. For those ordinary families who pay at least $600 (singles) or $1,200 (married couples) in federal income taxes, a $600 rebate check would be sent to single earners and $1,200 rebate check to married couples. An additional cash payment of $300 per child also would be provided. A typical family of four, for example, would receive a cash payment totaling $1,800. The cash payment would be limited to married couples with less than $150,000 in taxable income and individuals with less than $75,000 in taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . According to the Treasury Department, checks could be mailed by the Internal Revenue Service within 60 days of enactment.
The bonus depreciation provision, which is intended to ensure that business investment does not falter in the weak economic environment, is reported to be similar to the temporary provision enacted in 2002 and expanded in 2003. This provision would allow businesses to write-off immediately 50 percent of the cost of new investment in equipment.
As shown in Table 1, the cash payments would broadly focus stimulus across the population. Households in the first decile would tend to receive below average payments because they may not have sufficient earnings to qualify for the payment. The distributional effects of the bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. provision are shown in Table 2 and the combined effects of the two provisions are shown in Table 3.
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Table 1: Distributional Effect of Cash Payments |
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|
Income Decile |
Dollar Cut Off for Each Decile |
Average Per Household |
Average Per Person |
Share of Total |
|
|
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|
Bottom |
$11,996 |
$152 |
$86 |
1.7% |
|
Second |
$20,010 |
$418 |
$218 |
4.9% |
|
Third |
$28,918 |
$593 |
$283 |
6.9% |
|
Fourth |
$37,812 |
$803 |
$346 |
9.3% |
|
Fifth |
$48,016 |
$967 |
$388 |
11.2% |
|
Sixth |
$60,012 |
$1,129 |
$425 |
13.1% |
|
Seventh |
$75,400 |
$1,250 |
$448 |
14.5% |
|
Eighth |
$97,407 |
$1,307 |
$446 |
15.2% |
|
Ninth |
$133,702 |
$1,335 |
$440 |
15.5% |
|
Tenth |
$653 |
$204 |
7.6% |
|
|
|
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|
All Households |
N/A |
$861 |
$342 |
100% |
|
Note: Cash payments of $600 per worker (with at least $3,000 in earnings) and $300 per child would be provided. Only married couples with less than $150,000 in adjusted gross income and singles with less than $75,000 in adjusted gross income would receive the cash payment. Households are ranked by cash money income as defined by the U.S. Bureau of the Census, Current Population Survey. Source: U.S. Bureau of the Census, Current Population Survey, March 2007 Supplement. |
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Table 2: Distributional Effect of Bonus Depreciation for New Business Investment |
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|
Income Decile |
Dollar Cut Off for Each Decile |
Average Per Household |
Average Per Person |
Share of Total |
|
|
||||
|
Bottom |
$11,996 |
$60 |
$34 |
1.4% |
|
Second |
$20,010 |
$113 |
$59 |
2.7% |
|
Third |
$28,918 |
$170 |
$81 |
4.0% |
|
Fourth |
$37,812 |
$209 |
$90 |
4.8% |
|
Fifth |
$48,016 |
$250 |
$100 |
5.8% |
|
Sixth |
$60,012 |
$298 |
$112 |
6.9% |
|
Seventh |
$75,400 |
$390 |
$140 |
9.1% |
|
Eighth |
$97,407 |
$519 |
$177 |
12.0% |
|
Ninth |
$133,702 |
$741 |
$244 |
17.2% |
|
Tenth |
$1,554 |
$486 |
36.1% |
|
|
|
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|
All Households |
N/A |
$431 |
$171 |
100.0% |
|
Note: Bonus depreciation would apply to most new investment in equipment. The $50 billion reduction in business taxes under the bonus depreciation provision is allocated to owners of capital in proportion to their dividends, interest and capital gains income. Households are ranked by cash money income as defined by the U.S. Bureau of the Census, Current Population Survey. Source: U.S. Bureau of the Census, Current Population Survey, March 2007 Supplement. |
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Table 3: Total Distributional Effect of $150 Billion Stimulus Including Cash Payments and Bonus Depreciation |
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|
Income Decile |
Dollar Cut Off for Each Decile |
Average Per Household |
Average Per Person |
Share of Total |
|
|
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|
Bottom |
$11,996 |
$212 |
$120 |
1.6% |
|
Second |
$20,010 |
$531 |
$277 |
4.1% |
|
Third |
$28,918 |
$763 |
$364 |
5.9% |
|
Fourth |
$37,812 |
$1,012 |
$436 |
7.8% |
|
Fifth |
$48,016 |
$1,217 |
$488 |
9.4% |
|
Sixth |
$60,012 |
$1,427 |
$537 |
11.1% |
|
Seventh |
$75,400 |
$1,640 |
$588 |
12.7% |
|
Eighth |
$97,407 |
$1,826 |
$623 |
14.2% |
|
Ninth |
$133,702 |
$2,076 |
$684 |
16.1% |
|
Tenth |
$2,207 |
$690 |
17.1% |
|
|
|
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|
All Households |
N/A |
$1,292 |
$512 |
100% |
|
Note: Households are ranked by cash money income as defined by the U.S. Bureau of the Census, Current Population Survey. Source: U.S. Bureau of the Census, Current Population Survey, March 2007 Supplement. |
Methodology
The cash payments modeled in Table 1 were estimated using taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. variables in the Current Population Survey (CPS). Specifically, $600 was allocated to each adult earning at least $3,000. An additional $300 was allocated to households for each child in the household. The cash payments were limited to joint filers with less than $150,000 in income, single filers with less than $75,000 in adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” , and head-of-household filers with less than $112,500 in adjusted gross income.
The stimulus provided through bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. for new investment in equipment was allocated using capital income reported in the CPS (i.e., net capital gains plus dividends received plus interest received).
Decile rankings of households were constructed using total cash money income as defined in the CPS for calendar year 2006.
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