January 29, 2008

Tax Foundation Comments on Proposed Stimulus Deal

Based on the reported agreement between House Speaker Pelosi and House Minority Leader Boehner, it is apparent that fiscal stimulus may not be provided in the form of the much-touted tax rebates, but instead as simple cash payments to most working Americans. The cash payments would be set at $600 for individuals and $1200 for married couples who pay income taxes. Workers with at least $3,000 in earnings, but who pay no income taxes, would receive $300. There would be an additional payment of $300 per child added to the base. Estimates suggest the cash payments would total $100 billion.

Tax Foundation Vice President for Economic Policy Robert Carroll responded: “While direct cash payments may help boost consumer spending and shore up the economy in the near term, this relief would do virtually nothing to improve the prospects of working Americans or the economy as a whole over the long haul. Short-term fixes only serve as short-term solutions. In addition to addressing the current economic weakness, the Congress also needs to take notice of how far the U.S. business tax system has fallen behind in today’s global economy. The U.S. now has the second-highest corporate tax rate among major economies. Taking action on this pressing issue would improve America’s competitiveness, strengthen our economy, and protect American jobs facing pressure from foreign competition.”

For more on economic stimulus, read the following recent commentaries from Tax Foundation experts:

Revenue and Distributional Effects of Lowering the 10% Bracket to 0%

Economic Benefits of Stimulus Likely to be Small

Stimulus, Non-Payers, and Class Warfare

Did the 2001 Rebate Checks Stimulate Consumption?

Tax Rebate Checks Are Coming Soon Anyway