Q&A: You and the economic stimulus plan

The bipartisan plan for an economic stimulus package that would provide at least a short-term financial boost to most Americans could reach the floor of the House as early as this week.

While leaders in Congress prepare to work out the final details, many are asking how the package will affect them. Here are some of their questions, basic answers and comments from local experts:

What is the purpose of the economic stimulus package?

With economic growth sluggish, the hope is that putting money -- commonly described as a "tax rebate" -- in the hands of consumers will jump-start the economy.

"Consumer spending is a major driver of the economy," said David Fehr, an associate professor of finance at Southern New Hampshire University and director of the school's Center for Financial Studies, adding that he believes the plan is likely to help.

In addition to sending money to households, the economic-aid plan also includes raising the size of mortgages eligible for backing from Washington and granting businesses write-offs for investments made in 2008.

"Ultimately, this stimulus will go a long way to improving economic conditions," said Mark Gagnon, a certified financial planner and president of Granite State Retirement Planning Inc. in Bedford.

But, Gagnon noted, it could take several months before the stimulus package's effects become known. And, he cautioned, even positive effects provide no guarantee against future market downturns.

So, when will I get my check?

Some 40 million people who file their tax returns online could start getting payments by direct deposit in May. Congressional tax analysts say the government can send out up to 9 million paper checks a week. The IRS will have to reprogram its computers to calculate who gets the rebate and how much they will receive.

Who gets the money, and how much?

The amounts technically would be an early refund on your 2008 taxes, but they would be based on how much you paid in taxes in 2007. As it stands now, individuals with income of less than $75,000 would receive checks in the amount of $600. Married couples with a joint income of less than $150,000 would receive $1,200.

Additionally, singles and couples in those same earnings classifications would receive $300 per child. Thus, a couple earning less than $150,000, with one child, would receive a total of $1,500.

What if my income exceeds the stated limits?

According to the Treasury Department, rebates will be based on adjusted gross income. So if you have "above the line" deductions like student loan interest, that will lower your AGI.

Also, partial rebates would go to singles with an AGI of more than $75,000 but less than $87,000, and to couples making more than $150,000 but less than $174,000.

According to the Treasury Department, the rule of thumb is to deduct 5 percent of the overage from your rebate. For instance, a couple with an AGI of $160,000 -- $10,000 more than the limit -- will receive a rebate of $700 instead of $1,200, based on the Treasury's examples.

Having kids effectively boosts the income limit even further, as the phaseout is applied to the total rebate a family would receive.

And if I pay income tax but make considerably less than $75,000?

To get the full rebate, your annual tax bill has to cover the amount of the rebate. If it doesn't, you'll get a partial sum, up to the amount of the tax owed.

According to the Treasury Department, a married couple with two children and an AGI of $48,000 would get a rebate of $1,373 -- $600 for the kids, and $773 to cover the couple's federal income taxes for the year. A single parent with two children and an income of $38,000 would receive $1,033 -- $600 for the kids, plus $433 for tax liability.

If I don't pay income tax, do I still get money?

Any single person or married couple who made at least $3,000 in earned income in 2007 will be eligible. A single person would get $300; a couple would get $600; a couple with two kids, $1,200. That makes it a good idea to file taxes this year, even if you didn't make enough to require that you file.

It's important to note the difference between payroll taxes and income taxes. Everyone who works pays Social Security and Medicare taxes, but only people who earn enough pay income tax. Part of the idea behind giving money to workers who don't earn enough to pay income tax was to give money to those with lower incomes, who are believed more likely to spend the money than the well-off.

I work, but my spouse doesn't. What are we eligible for?

Your eligibility is based on your joint income -- regardless of whether one or both of you work.

I'm retired and living chiefly off Social Security. Will I get a check?

Probably not. If you only have Social Security income, you won't be eligible for a check.

However, if you had a part-time job for which you earned more than $3,000 in 2007, you will receive a check. Also, if you don't work but do pay federal income taxes on other income, you could be eligible for a check.

How will this affect my taxes in 2008?

The checks would be an advance on a one-year, 2008 tax cut that would turn much of the 10 percent tax bracket into a zero percent tax bracket and provide more in the way of child tax credits.

That said, the IRS is holding off on saying how it plans to handle the tax law changes -- because they haven't yet become law. If you have concerns, consider talking with a tax accountant.

Who's paying for all this?

The package, which also includes about $50 billion in tax cuts for business, is worth about $150 billion. Much of that will be funded through government borrowing.

Right now, the U.S. government owes about $9.1 trillion. A bit more than half of this is "public debt" -- owned by folks like you, your neighbors, and the Chinese government.

"We can't assume there's a free lunch here," Fehr said. "If the U.S. government is going to give this money to consumers, it's got to come from somewhere."

Material from the Associated Press was used in this report.

How would you spend it? On necessities, most say

Most respondents to a UnionLeader.com survey said they would use any funds from a federal economic-aid package to shore up their own financial position rather than spend the money.

About 42 percent of the 548 readers who responded as of Thursday afternoon said they would use the money to pay off debts, while about 22 percent said they would save the money. Another 27 percent said they would use the money to pay for daily necessities, such as food and fuel.

Only about 10 percent said they would spend the money on luxury items or travel.

The non-scientific survey addressed the Jan. 20 New Hampshire Sunday News Question of the Week: "If you received a tax rebate as part of an economic stimulus package, how would you spend the money?"

A bipartisan deal between the Bush Administration and leaders in the U.S. House brought the issue of a tax rebate to the forefront last week, as the parties agreed to a plan that would give most families an advance on a 2008 tax cut.