Fears of recession combined with an election year equal a chicken in every pot. The chicken that congressional leaders and the White House cooked up yesterday will cost our grandchildren about $150 billion plus interest. That’s right, the government is passing out money to the tune of $600 to $1,200 for most taxpayers in the form of one-time tax rebates. Here are the details:
Onetime Tax Rebates
- Receive up to $600
- Rebates are reduced for individuals earning $75,000 or more
- Rebates are eliminated once earnings reach $87,000
- Receive up to $1,200
- Rebates are reduced for individuals earning $150,000 or more
- Rebates are eliminated once earnings reach $174,000
Families with children receive an additional $300 per child and the income caps are higher. And those who don’t make enough to pay taxes would still receive $300 if they made at least $3,000 in 2007. Changes to depreciation and expensing rules for business were also included, aimed to spur investments.
Perhaps the mast significant feature of the stimulus package is the change made in the mortgage industry. Today, Fannie Mae and Freddie Mac can buy mortgages up to $417,000 in value. The Federal Housing Administration’s limit is $362,000. What that means for home buyers is that any loan above these amounts will come with a higher interest rate. In the industry, a loan that falls within these limits is called conforming, one that is too big is called a jumbo. The interest rate spread between a conforming loan and a jumbo has grown since the credit crisis begin last year, and is now over 100 basis points. The stimulus package would raise these limits to about $730,000 in expensive areas of the country.
What does all this mean?
The stimulus package underscores why the economic future of our country is so dim. We’ve come to a point were we believe 4% unemployment, 2% inflation and 5.5% mortgage rates are an entitlement. I understand that some people are hurting financially. Some people are always hurting financially. A $600 check won’t solve their problems.
And the fears of a rescission are misplaced. A recession is a lot like a fever. It may not be comfortable, but it’s there for a reason. It’s an indication of an underlying problem. You can take aspirin to reduce the fever if you want, but the problem won’t go away. And in fact, the fever can help combat the problem. And so it is with a recession. Frankly, I think we need a recession in this country.
What we are hearing from our politicians is frightening. Here’s President Bush’s take on the whole affair:
Letting Americans keep more of their own money should increase consumer spending and lift our economy at a time when people otherwise might spend less.
God forbid we spend less. And not to sound partisan, here is Senator Clinton’s view of why we are in a financial mess:
Our economic problems are complex. But there is one thing we know for sure: the problem with our economy is not the American people. Instead, the problem is – in part – the bankrupt ideas of President Bush and the Republicans that rewarded the few and left so many people to fend for themselves in a time of great change.
No reason to blame ourselves when we can point the finger at somebody else. Besides, taking responsibility for our actions is no fun. All of which leads me longing for a President who might share this perspective:
And so, my fellow Americans: ask not what your country can do for you – ask what you can do for your country.
My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man.
But returning back to present day politicians, there was one who actually said something sensible:
We can’t borrow our way out of this. The jig is up.
And to think I actually agree with something Mayor Michael Bloomberg had to say. I guess he’s right, the jig is up.
Reader Response: Is the proposed stimulus package the right move?