President Bush's Stimulus Package

With the final year of the Bush Administration winding down, all along the fence long-divided Democrats and Republicans are coming together to ask, "What now?"

We have criticized and been criticized over the morality, sensibility, and financial impacts of the Iraq war. The topic has been beaten into the ground with no clear answer as to what was wrong and what was right. The only thing both sides of the political spectrum are looking at now is how to deal with the financial impacts to our own economy - some caused directly by the war and some caused from slow-cooking factors that are showing signs of a boil.

The economy hasn't gone unnoticed on Capitol Hill after the recent housing crisis, mounting foreclosures, and a steady-declining economy overall.

The Republicans and Democrats have gathered together to forge a $150 billion dollar plan to help give the economy a boost to avoid recession, but many critics of their plan call Bush's stimulus package the equivalent of a piece of gum chinking a crack in Hoover Dam. How much longer will Bush's plan stave us off from the surety of recession?

The Plan

The plan itself is fairly simple and targets three means to stimulate the economy:

Rebates: Tax rebates will affect about 117 million families. Most individuals will see tax rebates of a minimum of $300 as long as they have an income level of at least $3,000 even if they do not have to file taxes. Those filing single with incomes over $75,000 or married filing joint with a household income of $150,000 will not receive the rebates.

Single filers will receive rebates up to $600 and couples will receive $1,200 plus $300 per child. These rebates are expected to be seen by the public in May and the program is reported to be a 'fast track' measure.

Business: There are new incentives for businesses. Small business will be able to deduct more for purchasing necessary business equipment, bringing their new limit to over twice the current limit of $112,000 allowed. Large businesses will also benefit from almost $40 million in allowable tax deductions. More information on these deductions is expected to be released shortly.

Housing: This provision allows more freedom of government-sponsored housing programs. Fannie Mae and Freddie Mac would have their loan caps increased so that they may purchase loans up to $729,750 increasing this limit by $312,750 over the current cap of $417,000 which would benefit families in highly-priced areas in obtaining loans and avoiding sub-prime mortgages.

FHA loans would also have down-payment requirements lowered, origination fees lowered, and the cap increased in order to encourage lenders to make loans for those previously on the borderline for qualifying.

Why it could work

In 2001, the tax cuts seemed to propel consumer spending and positively affecting the job market. Financial experts have also lauded the psychological impact that tax cuts have on consumers, inciting faith in the economy and faith that the government is working on the problems. Previously, similar tax breaks for businesses encouraged a 4% increase in business spending. Giving those seeking to become new homeowners breaks will see the much-needed rise in the housing market, recently devastated by foreclosures.

Why it could fail

Skeptics of the plan argue that the amount given is not enough to make any real impact. They say most given the larger amounts will just put the money into savings which does nothing to help the economy as intended. Some are eying the Federal Reserve for the answer and think the economy could best be helped by continuing to cut interest rates instead. The restructuring of FHA loans is not gaining faith as the housing prices are still too much house for most families to afford. For a home near the $700,000 range, a family would still have to come up with a 20% down payment which may still be unattainable. The small increase in business spending also causes critics to say the tax rebates for businesses are hardly worthwhile for the economy.

In the end, it doesn't matter what the skeptics or backers of the plan say. Statistics will prove themselves and I don't know many that would complain about extra money hitting their account in a time of inflated gas prices and economic crunch.

What does this mean for you and your family?

For my family, the tax rebates could not come at a better time. We are a military family and we know all about struggling to get by. We have been stationed in California over four years now and live in an area where people our age cannot afford to own homes.

Several years ago, we looked into the possibility of trying to buy a home. Due to the high cost of homes in our area, we were forced to look over an hour away from the base where my husband works. A starter home in that area started in the mid $300,000's. In Ohio, where I'm from, you could buy a very nice home for that price. For the same price here, the houses we would qualify for usually needed a lot of work.

We spoke with a lender, thinking that surely there must be some loan plan available that would make our dream of home ownership possible. The only thing we could be offered was an interest-only loan. Apparently, they are very popular here in Southern California and a very bad idea, especially for a military family with the potential to move and have to sell the home.

We reluctantly abandoned our dreams of home ownership.

While the new FHA restructuring may allow some to get homes, we will not be among them for the time being. We are going to a new duty station overseas, but the new terms are good news for those who've been saving for that down-payment but have had a hard time getting a government-sponsored loan to cover the amount of the house they are looking to buy.

Even if you're rather passive in the housing market, you still benefit as a consumer and citizen of the United States with the rebates assuming you make at least $3,000 and don't have an income over $75,000.

We are a family of four. With the new rebates, we could get as much as $1800 back on top of our projected return and we'll be happy to do our civic duty to see that the money gets back into the economy by investing in things we can use for our trip and things that we may not be able to purchase overseas. To see examples of what a family can expect to get back, please see the end of this article: http://www.usatoday.com/money/economy/2008-01-24-stimulus_N.htm

Will this stave off recession?

For now, it's safe to say that we can't be sure. Experts seem to be in agreement that another recession is inevitable...but when? How soon? Some are wondering if it will be as bad as the last big recession in 1982 where 11% of the population were out of work. The only thing you and I can do as citizens is to do our civic duties by buying American and putting more money into our economy to stimulate job growth, economical growth, and help our businesses continue to thrive. We also need to elect a strong economical candidate into office at the end of this year who has a plan we, the American people, can put our faith in.

Other sources of interest:

http://www.usatoday.com/money/economy/2008-01-24-stimulus_N.htm

http://money.cnn.com/2008/01/22/news/economy/cureupdate.fortune/index.htm

http://money.cnn.com/2008/01/24/news/economy/stimulus_package/?postversion=2008012417