To help fend off the looming recession, lawmakers have come together to create a new economic stimulus package. The main part of the stimulus plan calls for $100 billion in tax rebates. Most individuals will receive approximately $600, and most couples will receive approximately $1,200. People with children are set to receive an additional $300 per child. Individuals earning more than $75,000 per year and couples earning more than $150,000 per year will receive smaller rebates. Families earning in excess of $170,000 per year will not qualify for any tax rebate.
This tax rebate sounds good, but will this tax rebate really accomplish what it is intended to do? The purpose of this enormous stimulus package is of course to fend off recession, and the goal for these tax rebates is to encourage people to buy more stuff. The more money that gets cycled back into the economy, the less chance there will be for a recession. Will this stimulus plan, equal to about 1 percent of the total U.S. economy, be enough to ward of a recession?
I’m not sure if this plan will be enough to change the course the U.S. economy seems headed for. The other question in my mind is whether the recipients of these tax rebates will actually spend the money, as the government intends for them to do. That also seems questionable. The smart choice for most people would be to save and invest the money, rather than buy more stuff they don’t need in the first place.
I think many people are starting to realize that more rough times lie ahead. It is also my belief that the government underestimated the number of people who will decide to do the smart thing and save the money to help them though the recession. After all, even with this stimulus plan, there is no guarantee that a recession will be avoided. Maybe I’m giving the American people more credit than they deserve, considering their past savings habits (see American’s Negative Savings Rate), but I like to think they are beginning to learn their lesson.
The other part of the stimulus package includes changes in the conforming loan limits in certain areas. Look for more details on that in Monday’s blog post.