Under the "stimulus" bill that President Obama signed today some people will be getting close to 8 bucks per week, others will be paying higher taxes--a higher marginal tax rate.
Let's get to the good news first. If you are single and make less than $75,000 a year you get $400. Married and making less than $150,000 bucks you get $800. So look at it this way, if you are lucky you can expect a little less than 8 bucks a week.
The theory behind giving you a little bit each week is you will spend it. It appears many people saved the money from the Bush stimulus. We no longer like people to save in this country. Spend, Spend, Spend. Uh, isn't this what got us in trouble in the first place?
Now to the bad news. If you are single making over $95,000 forgetaboutit--you get nothing (double that for married folks). If you are in that little window between $75,000 and $95,000 your marginal tax rate is going up by two percent. Ditto, if you are married and making between $150,000 and #190,000.
They say this is $116 billion in tax credits for 95% of Americans. I am a bit confused. Close to 45 million Americans are in the zero tax bracket. Another 13 million or so retirees don't need to file a tax return. As far as I can tell, you won't be getting your 8 bucks a week. If you are making money the easy way, you know, from social security, dividends or interest I don't know if you get to play. In the Bush version your social security qualified you for $300-$600 bucks. Which you received all at once as opposed to 6 bucks a week.
Two thirds of Gross Domestic Product (GDP) is retail sales. So if everyone spends their 8 bucks, it would be a good thing. Maybe enough to keep your favorite luncheonette in business until the economy picks up.
The Wall Street Journal has a nice article on the latest attempt to boost consumer spending.
Subscribe to All American Investor via Email
By SUDEEP REDDY
The Obama administration is betting that an extra $8 a week in most Americans' paychecks will boost consumer spending and help pull the U.S. out of its downturn.
One piece of the $787 billion economic recovery package, which President Barack Obama plans to sign Tuesday in Denver, is an experiment in consumer behavior. The $116 billion in tax credits for 95% of Americans will come largely through reduced tax withholding from paychecks, over two years, rather than one-time payments.
The idea: let money trickle out to consumers so it feels like a permanent income boost.
When the government sent lump-sum checks for the 2001 and 2008 stimulus packages, Americans stashed most of the cash in savings or paid off debt. Neither of those actions fulfills the goals of a stimulus intended to offset weak consumer spending.
The tax break, one of Mr. Obama's campaign pledges, will provide up to $400 per worker or $800 for couples filing jointly. The credit begins phasing out for individuals making $75,000 a year and couples earning $150,000, eliminating 2% of income above that level from the tax break. That means that for every $1,000 over the cap, $20 of the credit is subtracted.
For example, someone earning $40,000 would receive the full $400, while someone who makes $85,000 would get $200, and a worker who earns $95,000 would receive nothing.
The first payments are expected to start hitting paychecks this spring, once the Internal Revenue Service releases new tax tables for employers to adjust payrolls. While the benefit for individuals amounts to $7.69 a week, the tax break for most workers this year should be about $12 to $14 a week to make up for the early months of 2009. Taxpayers who don't receive the break through employer payrolls can claim the credit as a refund on their 2009 taxes or by changing their quarterly withholding.
Whether the tax break boosts the economy in the short run depends in part on how stretched households have become and how consumers see the tax credit.
Getting money in a paycheck may indicate a steadier income gain, especially if recipients see it as a permanent middle-income tax cut -- as the Obama administration wants it to become eventually. "Spending something that's going to be a monthly or weekly flow would be the rational thing to do," said Matthew Shapiro, a University of Michigan economist who studied the 2001 and 2008 stimulus packages.
Consumers might connect a relatively large, single check in the mail to a credit-card debt or other loan that needs to be repaid. Or they could realize the need to save money in a downturn or in response to lower housing or investment values. That is what appears to have happened last year, when then-President George W. Bush's $152 billion stimulus package gave most Americans checks of $300 to $1,200. About a third was spent over the course of a year, while the personal saving rate shot up from zero in April 2008 to 4.8% the following month when the checks hit mailboxes.
At the time, consumers also were facing skyrocketing fuel prices as gasoline topped $4 a gallon. For many consumers, the government stimulus payments went largely toward offsetting the higher fuel bills, providing only a modest cushion to consumer spending as the economy continued to weaken.
"I don't care how you give it to me as long as I get money," said Matt Randolph, 26 years old, who is in the U.S. Navy. Last year, he and his wife, April, received a $1,200 check and said they used it to pay off credit-card bills.
This time around, Mrs. Randolph says, with the money spread out, "We'd think 'Oh a few more dollars. Let's go out to dinner.' For $16 a week, I am not going to go take a vacation somewhere."
Some economists are less optimistic than the White House about the boost from the stimulus. The personal saving rate in December jumped to 3.6% from 0.4% a year earlier, and Americans could decide to let the smaller payouts pile up.
"Because the economy is so much worse now and people are so much more panicked now, I do think it's more likely we'll get precautionary saving," said Mark Zandi, chief economist at Moody's Economy.com.
That's what Madeleine Leach plans to do with her money. Ms. Leach, a vice principal in the Newark, N.J., school district, says the weak housing and job markets have made her wary of spending too much. "You can't just go on spending money because you never know whether you're going to be employed," she said. Ms. Leach, 34, plans to save the money for her wedding next year.
Write to Sudeep Reddy at sudeep.reddy@wsj.com
More from All American Investor
Our government policy makers seem to think the opposite is true. George Bushs' solution to our problems was to tell us to "go shopping". Later he tried to get everyone to go shopping by sending them a stimulus check. My mother put hers in the bank. She will put the next stimulus check she is getting in May--in the bank. She is 92 and lived through the "last" depression. Don't get me wrong, she still likes to buy new cloths and likes to go out and have fun on Friday night. But, at the age of 92 you tend to think like a squirrel and not like a rabbit.
