Deal struck to send checks to taxpayers
Compromise would provide $600 rebates to most taxpayers in effort to spur spending and head off recession. High-income earners are mostly left out.
NEW YORK (CNNMoney.com) -- Congressional leaders and Bush administration officials agreed Thursday on a $150 billion stimulus measure aimed at keeping the economy from falling into recession.
Most single taxpayers would get $600 and most two-wage households would get at least $1,200. The deal includes an additional amount of $300 per child. A total of 116 million taxpayers will receive checks of some size.
The main exception: higher-income taxpayers or individuals earning $75,000 or more or couples earning $150,000 or more. They would get reduced rebate checks, or none at all, depending on their income.
The deal was announced Thursday afternoon by Speaker of the House Nancy Pelosi, D-Calif., House Minority Leader John Boehner, R-Ohio, and Treasury Secretary Henry Paulson.
Paulson said it is possible the Treasury could start sending out checks 60 days after any legislation is enacted.
Earlier proposals to increase food stamps and extend unemployment benefits are not part of the agreement. But some low-income taxpayers who owe no tax would get rebates, although those checks could be for less than $600.
"This is a middle-class initiative to strengthen the middle class and those who aspire to be in the middle class," said Pelosi. She said the relief was targeted to "those who need the money and will spend the money."
The broad outlines of the deal were first discussed a week ago in a conference call including administration and congressional leaders.
"The Speaker gave some and Republicans gave some, but I think it's a good compromise that will help the American people," said Boehner. "This was not easy."
President Bush, saying the deal would give the economy a shot in the arm, urged quick passage.
"Our economy is structurally sound, but it is dealing with short-term disruptions in the housing market and the impact of higher energy prices," Bush said. "These challenges are slowing growth."
The final negotiations over the last couple of days did not include Senate leaders.
Senate Majority Leader Harry Reid, D-Nev., praised the agreement but added that he expects senators to "work to improve the House package by adding funds for other initiatives." He cited unemployment benefits, food stamps, grants to states and public works projects.
President Bush said he would not support funds for public works being part of the stimulus bill, but Paulson wouldn't rule anything out. He said he would not speculate on Senate action or what changes to Thursday's deal could be "a deal-breaker" for the administration.
One of the biggest sticking points had been the level of assistance for low-income taxpayers who had been excluded from previous rebate plans. As part of the compromise, Republicans agreed to extend rebates to nearly 23 million taxpayers who pay payroll taxes to fund Social Security but make too little to pay income taxes.
Those who earned a minimum of $3,000 in 2007 will get a check for at least $300, or $600 if they are married and filing a joint return, even if they did not owe any income tax. But their rebates will gradually climb as does their income tax bill.
Under the deal, Pelosi said, 35 million low-income taxpayers will receive assistance that would not have under previous rebate programs. She said she may yet offer legislation to address unemployment and food stamp payments, but she and Boehner both said this was not the legislation to do so.
"It is simple, it is clean, it is neat and it will get the money back out into the American economy as quickly as possible," Boehner said about the agreement.
Some have argued that wealthier taxpayers are more likely to put a $300 check into savings or pay down debt, and that directing more of the stimulus to lower-income households that spend the money is likely to have a greater positive impact on the slowing economy.
"For any given pot of money, the more you target the lower-income, credit-constrained households, the bigger the bang for your buck," said Congressional Budget Office Director Peter Orszag in Senate testimony Tuesday.
The stimulus package will also include tax breaks for businesses to spur them to buy equipment, although only limited details were released Thursday afternoon. The total price tag of the package is expected to be at least $150 billion, which is equal to about 1 percent of the nation's economic activity for a year.
The deal also includes a short-term increase to $625,500 from $417,000 in the size of mortgages that can be purchased and guaranteed by government-sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500). Those increased limits would expire on Dec. 31.
In addition, it would include a reform of the Federal Housing Administration.
The proposal would lower home-buyers' down-payment requirements when getting FHA loans, increase the cap on loans eligible to be FHA-insured and lower origination fees It is believed those changes could help lenders make loans to risky borrowers who have found it difficult to arrange for home financing since the collapse in the market for subprime mortgages last summer.
The mortgage crisis and downturn in housing have been major causes of the weakening of the U.S. economy.
The National Association of Realtors and the National Association of Home Builders both argued Thursday that the change in rules for Fannie and Freddie were crucial.