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Who Should Get Tax Rebates? Stimulus Plan Triggers Dispute

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By EDMUND L. ANDREWS, The New York Times

Published: January 20, 2008

WASHINGTON - As President Bush and congressional Democrats begin negotiations on a package of measures to stimulate the economy, the big fight will be over whether to put extra money in the hands of tens of millions of low-income families who paid little or no income tax last year.

Nearly 40 percent of Americans owed no federal income tax last year, though even low-income workers paid taxes for Social Security and Medicare.

Although Bush has refused to disclose specifics of his $145 billion plan, administration officials and Republican lawmakers favor a proposal that would offer rebates of up to $800 for individuals and $1,600 for families - but only if they paid that much in taxes last year.

For practical purposes, analysts estimate, a family of four with an income of $24,000 would receive no government payments at all, and families with incomes of less than $40,000 at most would receive partial rebates. But a household with an income of $100,000 or more could get back $1,600.

Administration officials and Republican legislators say it makes sense to give tax rebates only to people who paid taxes.

"You have to be a taxpayer in order to get a tax rebate," said Rep. Paul Ryan, R-Wis., a member of the House Ways and Means Committee. "The White House is very clear that this is for people who pay taxes."

But Democrats are gearing up to fight that approach, arguing a stimulus plan should put money in the hands of low-income people, both as a matter of fairness and because people who are struggling to make ends meet are most likely to spend any government payments quickly.

For the purpose of jump-starting the economy, economists want people to spend extra money as quickly as possible.

Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal research group in Washington, estimated that under the Republican plan as many as 65 million Americans with low or modest incomes would miss out on part or all of the payments.

"This approach fails on two counts," Greenstein said. "It omits or partly omits those who need the help. And it omits the tens of millions of people who are living paycheck to paycheck and who would be most likely to quickly spend every dollar they can get."

In Washington, Democratic lawmakers and senior administration officials were working on a fast compromise.

Democratic aides in Congress said a compromise would have to include money for low-income people, either through tax rebates or temporary increases in anti-poverty programs such as unemployment benefits and food stamps.

For Republicans, a compromise would mean including tax incentives for business investment - a demand that Democratic leaders said they were open to discussing.

The administration's preferred approach, which Republican lawmakers have been circulating on Capitol Hill, would provide rebates by temporarily reducing the lowest tax bracket to zero, from 10 percent.

The lowest tax rate applies to the first $8,000 in taxable income for individuals and the first $16,000 in taxable income for families.

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