Talk on the street, in the lunchroom and among central Illinois business leaders is about President Bush’s Economic Stimulus Act of 2008, with its $300 or more rebate checks to individual taxpayers and a bundle of business growth incentives.
As the date quickly approaches when the IRS will begin mailing those rebate checks, many are wondering if the plan will really jumpstart the American economy. Even closer to home, are central Illinois businesses going to benefit?
View from the home front
Some conservative calculations indicate that yes, the economic stimulus initiative could inject millions of dollars into the central Illinois economy. Consider:
- There are slightly more than 282,000 individuals over age 17 in the Peoria-Pekin metro area.
- The median household income for this group is $47,266.
- If half of those residents qualify for the minimum $300 rebate check, it would mean $42 million would be injected into the local economy over the course of a few months.
Business tax incentives could add even more by reducing the business tax burden and freeing up capital to buy new equipment, expand facilities and hire new employees.
All of this money landing in central Illinois comes with no strings attached, so taxpayers can spend it however they see fit. Whether it buys a new appliance, pair of shoes, digital camera, set of tires for the family van or groceries, is up to the individual. Some even advocate paying down high-interest loans or credit cards, or investing the money for the future.
No matter how it enters the local economy, $42 million is a significant windfall. Coming as it does on the heels of regular tax refunds, it is almost sure to ring a few cash registers.
Nationally, more than 130 million Americans are expected to qualify for rebates, with the entire package adding up to $152 billion for individuals and businesses.
It all starts with the 2007 return
This whole rebate process starts when taxpayers file their 2007 federal income tax return. The amount of the rebate (for those who qualify) is calculated based on the information contained in returns. This even applies to those who may not normally be required to file a return because of their income level, or due to nontaxable income like Social Security benefits and veteran’s benefits.
Rebates start mailing in May
Officially known as “advance credit payments,” the cash rebates will begin with a base amount from $300 to $1,200, depending on the taxpayer’s 2007 income and whether the individual is single or married. An additional $300 may be added to that base amount for each qualifying child who was claimed (or will be claimed) on the 2007 return. A child is generally qualified if he or she was under age 17 on December 31, 2007, is a qualifying child for purposes of the dependency exemption, and is a child, stepchild, sibling, or descendent of any such individual.
Generally speaking, the more qualifying children who can be claimed, the fatter the rebate check. For example, a married couple with four qualifying children might be in line to receive a check for as much as $2,400 (the base amount of $1,200, plus $300 for each of the four children).
Don’t delay 2007 filing
Anyone who requests an extension to the April 17th filing deadline will have their rebate delayed until after their 2007 income tax return is received and processed. Late filers should also be extra-careful if they put off filing until the standard October 15th extension, as the IRS says no rebate checks will be processed after December 31st of this year.
That still may not be the end of the story. Taxpayers will receive a second chance when filing their 2008 returns in early 2009. The rebate will be recomputed based on 2008 taxes. If a higher rebate is computed, a credit will be applied against the taxpayer’s 2008 tax liability.
Not everyone is eligible
Non-resident aliens and anyone who can be claimed as a dependent on someone else’s income tax return, such as a college student, will not receive a rebate. Income-based phase-outs also begin for individuals with adjusted gross incomes of $75,000 and couples with adjusted gross incomes of $150,000.
A boost for business, too
On the business side of the coin, there is $44.8 billion in tax relief in two main incentive programs. The new law increases the amount of deductive Internal Revenue Code Section 179 expensing for 2008 to its highest level ever—$250,000—while also increasing the threshold for reducing the deduction to $800,000. It applies to property purchased and placed into service in any taxable year beginning in 2008. Before the change, businesses could only expense up to $128,000 of the cost of depreciable tangible property used in the business.
The other angle for businesses is what is known as temporary bonus depreciation. It allows qualifying companies to take advantage of a 50 percent, first-year bonus depreciation of the adjusted basis of qualifying property. To be eligible for the bonus, the property must meet certain requirements and be purchased and placed into service in 2008.
A number of states, including Illinois, often follow federal legislation as a basis for their state tax code, so absent any state legislation disallowing these business incentives, taxpayers may benefit from state income tax savings as well.
Time will tell
Although it is not completely immune, the Peoria area economy has not shown all of the signs of economic stress that other areas of the country have shown in recent months. The Economic Stimulus Act of 2008 may be just what the doctor ordered to smooth out major bumps in the road. In the end, only time will tell if the government’s actions will have the desired impact on the economy from both a national and local perspective. IBI