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What the stimulus package means to you

Posted Jan 24th 2008 3:23PM by Peter Cohan
Filed under: Federal Natl Mtge (FNM), Personal finance, Politics, Recession

President Bush and Sen. Harry Reid of Nevada The Associated Press reports that Congress has reached an agreement on an economic stimulus package. The report does not estimate the total size of the package, but it says that taxpayers will receive rebate checks ranging between $300 and $1,000 per household. Businesses will get tax breaks as well.

And the devil is in the details. Under the tentative plan, families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200. Rebates would go to people earning below $75,000 and couples with incomes of $150,000 or less. Workers would have to have earned at least $3,000 in 2007 to receive the rebates.

Businesses would receive $70 billion in tax breaks to invest in plants and equipment, and the plan would give small businesses more generous expensing rules and allow businesses suffering losses now to reclaim previously paid taxes. Furthermore, the plan would raise the size of the mortgages that Fannie Mae (NYSE: FNM) could buy from $417,000 to $700,000.

So what does this all mean to you?

If you're among those whose income has remained flat over the last seven years while prices of gas, fuel, and food have skyrocketed, this plan will help a bit. If it passes in its current form, by June 2008 this deal will put enough money into America's pockets to cover part of a month's worth of bills. And it will probably add somewhere between 1% and 2% to America's $14 trillion economy. Plus it would lower the interest rate for the huge mortgages undertaken to pay for houses up to $700,000.

But this plan has been designed to give political cover to its proponents. The current administration hopes it will push the recession into 2009. And presidential aspirants hope it will buy them some votes -- or at least keep them from being criticized for not caring.

While it will put some more money in the pockets of many, it will add about $150 billion or more to the deficit. And that could cost you more as the dollar drops in value.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Tags: economy, featured, FNM, personal finance, PersonalFinance, stimulus, tax rebate, taxes, TaxRebate

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