A new stimulus bill is feverishly being prepared so it can be signed as soon as President-elect Barack Obama gets into office. With the economy the way it is it's likely your employer may not be giving you a raise, but one part of the proposed stimulus bill may put more money in your pocket.
While exact details have not been made clear the president-elects stimulus package is most likely to include a tax cut to boost spending. In some scenarios it could be anywhere from an extra $83 to $166 per paycheck.
One of Obama's top advisers, David Axelrod spoke on "Meet the Press" on NBC last Sunday. He said Obama had promised a middle class tax cut and that his economic recovery package will include a portion of a tax cut that will become part of the permanent tax cut he'll have in his upcoming budget.
Obama proposed a number of tax cuts for middle and low income households. One of the proposed cuts that I find interesting is exempting seniors with income under $50,000 from having to pay income tax. I wonder how long that would last? No mention has been made if that would be a permanent cut.
Obama's proposed Make Work Pay Credit is the one most likely to get money in the hands of the greatest numbers of tax payers.
The credit simply has employers reduce the tax withholding in a person's paycheck. The credit works as a payroll tax credit equal to $500 a year for individuals and $1,000 for couples.
The full credit would be limited to those making $75,000 or less and $150,000 or less for couples. If you make between $75,000 and $85,000 or couples making between $150,000 to $170,000 would get only a partial credit.
An individual who gets paid every two weeks and receives the $500 tax break amount would receive an extra $19.23 a paycheck. A $1,000 break for couples equates to $38.46 per pay period.
One option being considered is rather than spread this out over the course of a year workers would receive the full $500 credit or $1,000 credit over the course of the first quarter. That would mean an extra $83 a pay period for individuals and $166 for couples.
That amount could even double if the tax credit gets approved for two years worth of credits.
But does a temporary tax cut work as well as a permanent one? Was last years stimulus that beneficial to anyone? I am not complaining about a free $600, but come on. Is it enough?
A spike in the personal savings rate jumped in the second and third quarters of last year suggests that consumers saved more of the $100 billion in stimulus checks than they actually spent.
Another theory why the savings rate went up is everyone was being told we are in the worst financial crisis since the great depression and consumers may have put off spending on big ticket items.
Economists generally say that a permanent tax break works better to boost the economy. Why is that? It's because people feel more confident in spending knowing that they will get that amount every year rather than temporarily.
An additional proposal is to have there be no sales tax for 10 days in months of March, July, and October. But is that enough.
First and foremost I think confidence has to be restored before anything. But just how do we do that with all the doom and gloom being broadcast every second.
I think these options will help, but they will take time. I think the best way to get things going is going with the proposed give everyone over 18 $425,000 plan, which can read about on our blog entry http://financialelite.blogspot.com/2008/10/save-615-billion.html . May be they ought to revisit that one.
What stimulus package would would best for you? What would you do if yo were President?
[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]
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