Stimulus Bill – Here Come the Tax Rebates

On February 7, 2008 the House and Senate both passed H.R. 5140. The stimulus bill was overwhelmingly approved by both the House and Senate and will permit the IRS to start sending checks to American taxpayers in May.

House and Senate leaders had promised to have a bill to President Bush by February 15, 2008. Moving with unusual speed, they managed to have a bill on the desk of President Bush one week before that date.

President Bush indicated he will quickly sign the bill and stated, “This plan is robust, broad-based, timely and it will be effective. This bill will help to stimulate consumer spending and accelerate needed business investment.”

Senate Finance Committee Chair Max Baucus (D-MT) was pleased that the bill included seniors and disabled veterans. He commented, “These changes are a victory for the 20 million seniors and for the 250,000 disabled veterans left out of the House-passed package. These changes are a victory for all Senators on both sides of the aisle who stood up to say this rebate should go to all the folks who will stimulate our economy the fastest.”

Treasury Secretary Paulson indicated that he will meet promptly with IRS leaders. While the IRS is fully occupied during tax-filing season, Secretary Paulson hopes that the IRS can start sending checks in May. It may take two or three months to send out the estimated 130 million checks.

How Much Is Your Tax Rebate Check?

Millions of Americans are wondering how much their tax refund check will be. Like many government programs, there are a number of requirements in order to receive a check.

First, the minimum check will be $300 per person ($600 for married filing jointly). The minimum check will be sent to individuals who have any federal tax liability or $3,000 income from self-employment, disability payments or Social Security. Under the bill, this provision will enable 20 million Social Security recipients and 250,000 disabled veterans to receive at least the minimum $300 check.

Second, if an individual has taxable income of $6,000 ($12,000 for married filing jointly), then he or she may receive the maximum rebate of $600 ($1,200 married).

Third, individuals with dependent children will receive an additional $300 per child. The rebate checks for both the taxpayers and children will be made only if the taxpayer has included the Social Security numbers of the children on their tax return. However, the favorable news for families is that there is no limit to the $300 per child rebate. A family with ten dependent children could receive a rebate check of $4,200 ($1,200 plus $300 per child.)

Finally, there is a phase-out for higher income persons. Their rebates will be reduced by 5% of the excess adjusted gross income over $75,000 ($150,000 married).

If you are a business owner, there are two other potential benefits. First, the ability to purchase equipment and deduct it (the expensing limit) is increased from $128,000 to $250,000 for 2008. In addition, there is a bonus depreciation of 50% on qualified equipment acquired during 2008.

Finally, the stimulus bill will help some persons buying new homes. The qualifying limit for conforming loans from Fannie Mae or Freddie Mac is adjusted from $417,000 up to $729,750. This may permit some individuals to acquire homes with more reasonable interest rates on larger loans.

Proposed Federal Budget Tops $3.1 Trillion!

President Bush and the White House just sent the proposed federal budget for next year to Congress. For the first time in history, the budget is over $3 trillion, with a total estimated expenditure of $3.1 trillion.

President Bush commented in his budget message, “Two key principles guided the development of my budget — keeping America safe and insuring our continued prosperity. As Commander in Chief, my highest priority is the security of the American people.”

Senate Budget Committee Chairman Kent Conrad (D-ND) was concerned about the proposed $407 billion deficit. He noted, “The President proposes more of the same failed policies he has embraced throughout his time in office — more deficit-financed war spending, more deficit-financed tax cuts that could benefit the wealthiest, and more borrowing from foreign nations like China and Japan.”

Both the House and Senate Budget Committees scheduled hearings with Treasury Secretary Henry Paulson this week. Secretary Paulson indicated that he hoped the 2001 and 2003 tax cuts would be made permanent. Office of Management and Budget Director Jim Nussle agreed at the Senate budget hearing that “unsustainable growth of entitlement spending” is a major challenge for the future.

Proposed Budget Benefits For Charitable Giving

The proposed White House budget includes six important benefits for charitable giving. Several of the benefits had “sunset” dates on December 31, 2007. These benefits were included in a “tax extenders” bill in November of 2007, but the House and Senate were unable to agree on that legislation. It is quite possible that the tax extenders will be extended by legislation for the year 2008.

However, the President’s proposed budget would make permanent six charitable provisions starting in year 2009. The provisions and costs over ten years are as follows:

IRA Charitable Rollover. IRA owners over age 70½ will be permitted to transfer up to $100,000 per year tax-free from their IRA custodian to a qualified charity. Cost — $3.32 billion over 10 years.

Food Inventory Gifts. An individual or a C corporation will be able to give “apparently wholesome food” to charity and receive an enhanced deduction. Cost — $1.52 billion over 10 years.

Computer Gifts. Corporations may make gifts of computers to elementary and secondary schools and receive an enhanced deduction. Cost — $1.84 billion over 10 years.

Conservation Easement Gifts. Conservation easements will qualify for a deduction limit up to 50% of adjusted gross income (AGI). Farmer and rancher qualified conservation easements may be deducted up to 100% of AGI with a 15-year carry forward. Cost — $0.24 billion over 10 years.

Subchapter S Gifts. Gifts of appreciated property directly to charity by subchapter S corporations will be deductible by shareholders at fair market value with outside basis reduced only by inside basis. Cost — $0.35 billion over 10 years.

1% Private Foundation Excise Tax. The existing 2% excise tax (1% for certain private foundations) would be modified and all private foundations would have a 1% excise tax on net investment income. Cost — $1.57 billion over 10 years.

Editor’s Note: It is very encouraging that the first tax benefit on the list is the IRA Charitable Rollover. It also is the most expensive item at a cost of $3.3 billion over 10 years. While this is a tiny percentage of the federal budget, given the impending budget crunch it will continue to require strong support from all friends of philanthropy to obtain the permanent extension of the IRA Charitable Rollover. Efforts are continuing by a coalition of charitable organizations to make permanent the IRA Charitable Rollover. However, because the IRA Rollover did not get into the stimulus bill, it and the other 30 tax extenders may now be included in legislation in mid-2008. History suggests that the tax extenders will be passed and probably will be retroactive to January 1, 2008.