The overall impact of the payout – placing some $100 billion mostly in the hands of middle- and lower-income taxpayers – should modestly boost the nation's economy in the second half of the year, economists agree. But it may only soften the blow of any recession, making it "shallower" than it might be without this spending.
The president sought this quick relief as "a shot in the arm" for an economy which the White House maintains is going through a "rough patch." The White House, while acknowledging that the growth of the economy is slowing, does not concede that a recession is coming – though the Bush administration is projecting near-record federal budget deficits this year and next, with the tax rebates adding to that deficit.
"Money will be going directly to American workers, family and individuals," Bush said earlier this week. "It's going to help deal with the uncertainties in this economy."
Congress quickly responded to the president's call for an initial package of $145-billion in tax relief for individuals and families as well as tax relief for businesses. With swift bipartisan approval, Congress gave the president a $168-billion measure that includes tax breaks aimed at encouraging business expansion and increases in the mortgage limits that federal lending agencies can support in the midst of a home-mortgage crisis.
"Many Americans are worried about their mortgages," Bush said today. "My administration is working to solve this problem."
The lion's share of the relief will come as tax rebates for eligible taxpayers, people earning at least $3,000 a year. The minimum payment will be $300 for an individual and $600 for a couple filing a joint tax return. Based on the amount of taxes that people pay, the rebate will be as much as $600 for an individual and $1,200 for a couple. In addition, rebates will add $300 for each child in a family eligible for tax credits.
The sliding scale is designed to offer the most money in checks to lower- and middle-income taxpayers, with the nonpartisan Center on Budget and Policy Priorities reporting that a couple with two children with an income of $35,000 a year will see a tax rebate of $1,800 – the maximum for a couple with money added for the children.
And because that money will be going to people most likely to spend it, rather than save or invest it, economists agree that it should have its intended effect of pumping billions of dollars into an ailing economy.
"This puts money in the hands of people who will spend it," said Chad Stone, chief economist for the Center. "The more people are up against their credit card limits, the more likely they are to spend the rebates."
Combined with cuts which the Federal Reserve has made in interest rates this year, Stone says, the tax rebates should offer some modest help for the economy at a time when many are predicting a recession.
"On balance, it will provide some useful stimulus, on top of the stimulus that will come from the big rate cuts that the Fed had made," he said. "A lot of people will say it's too little to make a difference. Maybe, if that were the only thing going on that might be true. But it's not the only thing going on."
The Economic Stimulus Act of 2008, which Bush signed this afternoon in an East Room ceremony at the White House, could boost the nation's Gross Domestic Product by one-half to one-percent in the second half of the year, other economists say.
"Clearly it will have impact on the second half of this year," said Sung Won Sohn, an economist who teaches at California State University and served as chief economist for Wells Fargo Bank. "We think it could boost GDP at an annual rate of 1 percent during the second half of 2008. That is fairly significant.
"The rebate is structured in such a way that it aims at essentially low and moderate income folks," Sohn said. "They are suffering because of the high price of gasoline and the high price of food.
