<p>"The main tasks Roosevelt assigned himself were simple.&nbsp; The first was that there be a broad sweep of activity; Americans must know that Washington was doing something.&nbsp; If there were contradictions between experiments and within them, well, that did not matter... The second goal was to get prices up, without much regard to whether the methods applied to achieve that goal made sense."-Amity Schlaes's</p> <p>There are many similarities between the 1930's and today, not the least of which is the pressure to do something, anything it seems, to get the economy out of its freefall.&nbsp; The latest "something" was recently passed, in the form of the American Recovery and Reinvestment Act.&nbsp; We can continue to debate whether or not taking money from one pocket and putting it in another will actually spur economic growth (it has to come from somewhere, doesn't it?), but at this point we'll just have to wait and see if this Keynesian economic policy will work.&nbsp; Ironically, the belief that big government spending can prop up consumer spending and ultimately rescue the working class originated with John Maynard Keynes, an elitist who didn't think America was smart enough to govern itself and despised the working class.&nbsp;</p> <p>The biggest "what's in it for me?" item in this stimulus package is the new "Making Work Pay" credit, offsetting the first $400 of Social Security tax you pay ($800 for joint filers).&nbsp; It phases out as your adjusted gross income tops $75,000 ($150,000 joint). &nbsp;The details of how workers will get this credit are still unclear; you may either see an extra $12 to $14 a week in take home pay, or a credit on next year's taxes.&nbsp; There may be a choice for changing payroll withholding as well.&nbsp; Congress would prefer you to have it a little each week and spend it; they don't want it to be used for paying down debt or putting the money in the bank (be a rebel-save it anyway).&nbsp;</p> <p>Of particular interest to commuters, your employer may allow you to set aside up to $230 a month on a pretax basis during 2009 and 2010 to pay for the bus, train, or parking.&nbsp; Previously, the amounts were $230 for parking but only $120 for mass transit.</p> <p>There's also a new higher education tax credit of up to $2,500 for your first $4,000 in college expenses. The credit phases out as your AGI tops $80,000 ($160,000 joint).&nbsp; In 2009-2010 only, you can use Section 529 plan funds for computer-related expenses, including software and online access, similar to provisions for the Coverdell accounts.&nbsp;</p> <p>In an effort to boost the auto industry, you can deduct state and local sales and excise tax you pay on a new (but not used) car, light truck, RV, or motorcycle you buy between January 1 and November 30, 2009.&nbsp; The deduction is limited to purchase amounts up to $49,500 and phases out as your AGI tops $125,000 ($250,000 joint).&nbsp; But let's do the math:&nbsp; if you buy a new car for $20,000, and are in the 25% tax bracket, you will save about $300 on that new car.&nbsp; On the other hand, it may be possible to buy that $20,000 vehicle for 20% less if it's a used, year old model, saving a whole lot more than $300.&nbsp; Also if you buy a new car with a trade in, your sales tax and consequently the deduction may be lower.</p> <p>Buying a home? The act increases the "first-time homebuyer" credit from $7,500 to $8,000 (or 10% of the purchase price, whichever is less), extends the purchase period through November 30, 2009, and eliminates the requirement to repay the credit for homes purchased in 2009. This credit phases out as your AGI tops $75,000 ($150,000 joint).&nbsp; The best news is the credit is refundable, which means that if your actual tax liability is less than the credit amount, the government will refund you the difference.&nbsp; Again, details are unclear, but you may be able to claim the credit on your 2008 taxes and not wait until next spring.&nbsp; For purposes of the law, a first time homebuyer is defined as someone not having owned a home for the previous three years.&nbsp; Also, if the home is not occupied for at least three years, the full credit will have to be repaid.&nbsp;</p> <p>For those who have lost their jobs and are collecting unemployment, the first $2,400 will be tax free for 2009.&nbsp; There is also very good news for those who have lost or will lose their jobs between September 1, 2008 and December 31, 2009; the act contains a federal subsidy of up to 65% for COBRA health insurance premiums.&nbsp; If you have already declined COBRA coverage, you will have another chance to enroll; call your former employer for details.&nbsp; The subsidy can be used for up to 9 months, and will be paid directly to the former employer.&nbsp; To be eligible, your income in the subsidy year cannot be more than $125,000 for singles and $250,000 for married filing jointly.&nbsp;</p> <p>Some retirees and disabled individuals will receive $250 refundable credit, to arrive within 120 days of the bill's passage.&nbsp;</p> <p>Finally, the bill again "patches" the Alternative Minimum Tax, to protect 24 million mostly middle-income filers from the AMT's bite.&nbsp;</p> <p>You can see the details of the 1100 page bill for yourself at <a href="http://www.recovery.gov/">www.recovery.gov</a>, where you can track recovery funds, watch how they are spent, and make suggestions.&nbsp; What the website can't predict, and what remains to be seen, are the long term effects of taking on so much government debt and putting the printing presses on overtime.&nbsp; We're walking a tightrope between deflation and inflation.&nbsp; Without any action, we risk spiraling into a deflationary period, if we're not there already; and while deflation may seem like a welcome change from high prices, the lower wages and job losses that go along with lower prices are not so welcome.&nbsp; On the other hand, if we flood the economy with too many newly minted dollars, and productivity does not increase along with it, we run the risk of swinging the other way, into hyperinflation.&nbsp; Ideally, the spending will indeed stimulate the economy and jumpstart us back into a period of prosperity, but we need to be prepared for all three possible outcomes:&nbsp; prosperity, deflation, or inflation.&nbsp; The only thing certain is that there will be economic uncertainty, and a strong, balanced financial plan will have provisions and protections for each scenario.&nbsp; No matter which way we go, one of the best investments you can make right now is to pay down your consumer debt and beef up your bottom line.&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>&nbsp;</p> 2009-03-17T13:49:07Z 2009-03-19T14:17:43Z -10.244 287 3682 true 10 29034 economic-stimulus-whats-in-it-for-you 2 2009-03-19T14:17:37Z 2009-03-19T14:17:43Z

The new American Recovery and Reinvestment Act... What's in it for YOU? Commuting benefits, payroll tax credits, COBRA subsidies, first time homebuyers, car buyers... there's something for almost everyone.

1 2009-03-19T14:17:43Z