CNNMoney
By Chris Isidore
January 24, 2008
Compromise could send $600 rebates to most taxpayers in effort to spur spending and head off recession. Those earning more than $75,000 reportedly
could be left out.
NEW YORK (CNNMoney.com) -- Congressional leaders and Bush administration officials have reached a deal on an economic stimulus package that would send $600 to more than $1,200 to most taxpayers in an effort to keep the economy from falling into recession.
Sources told CNN that the deal would pay taxpayers $600 and two-wage-earner households as much as $1,200. A Democratic aide and a Republican aide said the deal will include an additional amount per child amounting to about $300.
The rebates would be made available to individuals earning at least $3,000 a year and no more than $75,000 - or couples earning $150,000 or more, the sources said.
Earlier proposals to increase food stamps and extend unemployment benefits are not part of the agreement.
An announcement on the plan could come Thursday afternoon, sources told CNN.
The deal was reached between Treasury Secretary Henry Paulson, who has been negotiating on behalf of the Bush administration, House Minority Leader John Boehner and Speaker of the House Nancy Pelosi, sources on Capitol Hill familiar with the negotiations told CNN Thursday. Boehner and Pelosi are expected to be meeting Thursday with members of their own parties in the House to explain and sell the deal.
While the negotiations did not specifically include Senate leaders, there are indications that the chamber's leadership will follow the lead of the House and the administration. Senate Majority Leader Harry Reid talked to Pelosi and was calling members of his caucus about the agreement. It's expected that the Senate would make few substantial changes in whatever bill emerges from the House.
Pelosi agreed Wednesday to drop Democratic proposals to boost food stamps and extend unemployment benefits. In exchange, Republicans agreed to extend rebates to nearly 23 million taxpayers who pay payroll taxes to fund Social Security but make too little to pay income taxes.
Workers earning as little as $10,000 a year pay more than $600 in payroll taxes, even if they don't owe any income tax. Those making minimum wage and working full time will earn just under $13,000 this year, although they won't pay income taxes. Paulson had previously said the administration was looking for help to those who pay income taxes.
Dropping the food stamp increase and the extended unemployment compensation is likely to cause an uproar among liberals, but Pelosi is pointing out that the deal greatly expands the number of people who will get rebate checks.
"Millions more people are going to get rebate checks," the senior Democratic aide said.
Some have argued that wealthier taxpayers are more likely to put a $300 check into savings or pay down debt, and that directing more of the stimulus to lower-income households that spend the money are likely to have a greater positive impact on the slowing economy.
How you'll get your check
Congressional Budget Office Director Peter Orszag, testifying before the Senate Finance Committee on Tuesday, said the 2001 experience with the use of broad-based tax rebates to stimulate the economy suggests that expanding the pool of lower-income households who get the rebate this time would lead to an "appreciable" economic boost.
"For any given pot of money, the more you target the lower-income, credit-constrained households, the bigger the bang for your buck," Orszag said.
There is also broad agreement that the stimulus plan will include tax breaks for businesses to spur them to buy equipment. The total price tag of the package is expected to be at least $150 billion, which is equal to about 1 percent of the nation's economic activity for a year.
Dow Jones reports that the deal will also include various reform proposals for government-sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE), as well as the Federal Housing Administration.
Both of the mortgage reform proposals are designed to help the meltdown in the mortgage market that has taken place since last summer, which has hit home sales and home building and helped to weaken the U.S. economy.
Right now only Freddie and Fannie only purchase mortgage loans up to $417,000. People who need a loan larger than those so-called conforming loans must get what is known as a jumbo loan, which is more expensive and has become tougher to come by since the meltdown in mortgages.
The National Association of Realtors and the National Association of Home Builders both argued Thursday that the change in rules for Fannie and Freddie were a key element of any stimulus package.
"The most effective way to stimulate housing and minimize the potential for a recession is for lawmakers to raise the limit on conforming mortgages to $625,000, which would open safe and affordable financing to buyers in high-cost areas," said Richard Gaylord, president of the Realtors trade group. "It is grossly unfair that some Americans do not have access to low-interest rate loans."
But the proposals about Fannie and Freddie as well as the FHA are more complicated and perhaps more controversial than the more straightforward proposals to provide economic stimulus to a broad group of taxpayers. And there had been calls to keep the stimulus package clean of other measures.
The Senate Finance Committee heard testimony from leading economists, including Martin Feldstein, one of the architects of a previous stimulus plan passed by the Bush administration in 2001. That deal gave a $300 income tax rebate, without any kind of income cap to limit checks going to wealthier taxpayers.
Feldstein said he basically supported the stimulus package believed to be part of this deal, although he does not support an income cap on those who would receive checks. But Jason Furman, director of the Hamilton Project at the liberal think tank the Brookings Institution, supported the income cap for those receiving rebates.
Source: CNNMoney
Stimulus deal struck
