Senate Democrats

H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act

 
On January 29, the House approved H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act.  During the week of February 4, Senator Reid is expected to offer a substitute amendment that improves H.R. 5140.  This Legislative Bulletin describes the substitute amendment, referred to as the Economic Stimulus Act of 2008, which is the name of legislation that the Senate Committee on Finance approved on January 30 that forms the core of the amendment. 

Summary and Background

A bipartisan group of Senators are committed to mitigating an economic slowdown by providing direct financial relief to America’s hard-working families and jumpstarting the slowing economy.  The Economic Stimulus Act of 2008 would meet that goal with timely, targeted and temporary measures and help Americans who are squeezed between lower wages and fewer employment opportunities on the one hand, and skyrocketing costs for basic necessities like gas, health care and groceries by:

  • Putting hundreds of dollars into the hands of millions of American families who will spend the money and help stimulate the economy;
  • Helping families avoid foreclosure by expanding financing opportunities for Americans in danger of losing their homes because of the mortgage crisis; and
  • Promoting near-term business investments, particularly for small businesses, which will spur job creation.

On January 29, the House approved H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act.  The House proposal is a good first step, but Democratic and Republican Senators have worked together to develop a bipartisan package to make the plan much better.  On January 30, the Senate Committee on Finance reported the Economic Stimulus Act of 2008, which is similar to the House proposal, but adds important provisions that would further stimulate the U.S. economy.  On February 4, the Senate invoked cloture on a motion to proceed to H.R. 5140.  With the cooperation of Senate Republicans, the consideration of the Senate plan will not delay for a single minute the issuance of rebate checks to American families.

This Legislative Bulletin provides a description of major provisions, anticipated amendments, legislative history, endorsements, the Statement of Administration Policy, and links to related reading resources.

Major Provisions

The following describes major provisions of the legislation, including a comparison of the House and Senate proposals.

Stimulus Rebate

The Economic Stimulus Act of 2008 would:

  • Expand the payment of rebates to reach the 20 million American senior citizens and other Social Security recipients who did not work or pay income taxes in 2007.  American senior citizens and others would be able to qualify for the rebate based on their Social Security income rather than their earned income of income tax liabilities.  Many of these seniors are living on fixed incomes but are facing living costs that continue to rise. 
  • Expand the payment of rebates to reach the nearly 250,000 disabled veterans who do not file a tax return.  These wounded American heroes, who were left out of the House-passed H.R. 5140, would qualify for a rebate to be distributed by the Veterans Administration.
  • Provide a $500 rebate for every American reporting $3,000 in wages, Social Security income, or net self-employment income on a 2007 tax return.  This rebate would double for married taxpayers filing jointly, and families would receive an additional $300 for every qualifying child under age 17.  The rebate would be phased out for single filers making more than $150,000 and for married couples making more than $300,000 annually. 

The Economic Stimulus Act of 2008 contains safeguards to ensure that those not in the U.S. legally do not obtain a rebate.  Specifically, rebate recipients must have a valid Social Security number.

The House-passedversion of H.R. 5140 would:

  • Provide a rebate to many, but not all, middle-class Americans.  The House planwould provide a rebate of up to $600 per individual and $1,200 per married couple, plus an additional $300 per child.  For lower income households without tax liability, the House plan would provide a minimum rebate of $300 for singles and $600 for married couples with earnings of at least $3,000. 

Households with earnings under $3,000 would not receive a rebate.  The rebate would also be phased out for those with incomes of $75,000 for single filers and $150,000 for married filers.

The House-passedversion of H.R. 5140 provides for rebates for any individual who has filed a 2007 income tax return, regardless of whether he or she has a valid Social Security number.

Emergency Unemployment Benefits

Moody’s Economy.com found that each dollar spent on extended unemployment insurance benefits would generate $1.64 in increased economic activity.  The Economic Stimulus Act of 2008 would:

  • Extend the period beyond the usual 26 weeks that unemployed workers can receive federal unemployment benefits by 13 weeks through the end of 2008.  The Economic Stimulus Act of 2008 would also provide for an additional 13 weeks of benefits for those in states with unemployment rates above 6.5 percent.[1]

Individuals who have begun to receive the extension of benefits by the end of December 2008 would be eligible to receive benefits for the remainder of those weeks.

The House-passedversion of H.R. 5140 does not include an extension of unemployment insurance benefits.

Helping Families Avoid Foreclosure

Expanding financing opportunities for Americans in danger of losing their homes because of the mortgage crisis would not only help families save their homes from foreclosure, it would stabilize neighborhoods rocked by foreclosures and declining house prices and provide an immediate boost to the housing sector and the economy.

The Economic Stimulus Act of 2008 would increase affordable refinancing opportunities and liquidity in the housing market by:

  • Temporarily increasing conforming loan limits.  The Economic Stimulus Act of 2008 plan would increase credit availability in the mortgage market by effecting a one-year increase in the loan limits for single-family homes from Fannie Mae and Freddie Mac to 125 percent of the area median home price (with a maximum of $729,750).
  • Increasing the Fair Housing Administration loan limit.  The Economic Stimulus Act of 2008 would expand affordable mortgage loan opportunities by temporarily increasing Federal Housing Administration loan limits to 125 percent of the area median home price (with a maximum of $729,750).
  • Providing an additional $10 billion of tax-exempt private activity bond authority.  These bonds would be used by states to refinance subprime loans taken out between December 31, 2001 and January 1, 2008, to provide mortgages for first-time homebuyers, and for multifamily rental housing.

Interest earned on mortgage revenue bonds would be exempt from the alternative minimum tax.

The Administration’s Budget for Fiscal Year 2009 includes a similar provision to allow tax-exempt qualified mortgage bonds to be used to refinance home mortgages to provide relief for subprime borrowers. 

  • The House-passed version of H.R. 5140 would temporarily increase conforming loan limits and increase the Fair Housing Administration loan limit, both of which are described above.

Help low-income Americans contend with record home-heating costs

Many low-income households are faced with the dire choice of having to decide between spending their scarce resources on food, medicine, or heat.  The Low-Income Home Energy Assistance Program (LIHEAP) awards grants to states, territories, Indian tribes, and tribal organizations to assist low-income households in meeting the costs of home energy.  States have flexibility in how they provide assistance, including direct payments to individuals and vendors and direct provision of fuel. 

The Economic Stimulus Act of 2008 would:

  • Add $1 billion in funding for the Low-Income Home Energy Assistance Program for Fiscal Year 2008.  Energy costs have been rising steadily and have skyrocketed in recent months.  The price of oil remains at record highs and, and consequently, home energy costs are stretching family budgets even tighter.

Because of increasing energy prices, the value of a LIHEAP grant has declined significantly.  LIHEAP funding will go to families and seniors most in need of assistance, and the funding will be spent quickly to help local economies.

The House-passedH.R. 5140 does not include any additional LIHEAP funding.

Encouraging Business Investment and Helping Businesses in Crisis

The Economic Stimulus Act of 2008 would provide for:

  • Enhanced small business expensing.  The Economic Stimulus Act of 2008 would double the amount small businesses can immediately write off their taxes for capital investments made in 2008 from $125,000 to $250,000, for purchases of new equipment of up to $800,000 (from $500,000).

  • Accelerated bonus depreciation.  The Economic Stimulus Act of 2008 would provide immediate tax relief for all businesses to invest in new machinery and equipment by speeding up depreciation provisions, so that firms can write off an additional 25 percent depreciation in the first year and 25 percent in the second year.
  • Additional tax benefits for businessesby allowing the businesses struggling the hardest to deduct losses from up to five years ago.  The Senate plan would allow corporations to apply excess net operating losses (NOL) to tax returns from prior profitable years and receive any applicable refunds.  For 2006, 2007, and 2008 losses, the NOL carry back will be extended to five years (back to 2001) from the two years currently in law. 

The extension of the NOL carry back provision from two years to five years will give companies in loss positions cash infusions they need to stay afloat.

The House-passedversion of H.R. 5140 would provide for the small business expensing, described above, and bonus depreciation, described above, but provide for 50 percent depreciation for investments purchased in 2008. 

Temporary Extension of Renewable Energy and Energy Efficiency Incentives

The extension of energy efficiency and renewable energy incentives will help to create jobs, expand the clean energy industry, save consumers money on their energy bills, and help begin to stem the tide of global warming.

The Economic Stimulus Act of 2008 would extend a handful of tax incentives that expired at the end of 2007 or will expire at the end of 2008.  These would include extension of the renewable energy tax credit (Section 45); energy-efficient business property tax credit;  energy-efficient appliances tax credit; energy-efficient residential property tax credit; energy-efficient existing homes tax credit; energy-efficient new homes tax credit; energy-efficient commercial buildings; clean renewable energy bonds; and suspension on the taxable income limit for depletion for marginal oil or gas wells.  In addition, the Senate bill would allow coal producers and exporters to claim a refund for excise taxes unconstitutionally imposed on coal exported from the United States.

The House-passedversion of H.R. 5140 does not include renewable energy and energy efficiency incentives.

Amendments

Senator Reid is expected to offer an amendment to H.R. 5140 comprised of the provisions described above as the Economic Stimulus Act of 2008.  This includes provisions of legislation that  the Senate Committee on Finance approved on January 30, 2008 by a 14-7 vote; the House-passed bill’s language on housing; and $1 billion to help low-income Americans heat their homes through the Low Income Home Energy Assistance Program.

The DPC will distribute information on other possible amendments as it becomes available.

Legislative History

On January 28, 2008, House Speaker Pelosi and 15 co-sponsors introduced H.R. 5140, which was considered on the House Floor on January 29, 2008 under suspension of the Rules.  On January 29, 2008, the House approved H.R. 5140 by a 384-35-1 vote.

On January 30, the Senate Committee on Finance held an executive committee session to consider The Economic Stimulus Act of 2008.  The Committee approved the legislation, as amended, by a 14-7 vote.

The text of The Economic Stimulus Act of 2008 is available here; Joint Committee on Taxation Description of the Economic Stimulus Act of 2008 (January 30, 2008) is available here;the Estimated Budget Effects of the Chairman’s Modification to the Economic Stimulus Act of 2008 (January 30, 2008) is available here; theSenate Committee on Finance staff description of the bill (January 31, 2008) is available here.

On February 4th, the Senate agreed by an 80-4 vote to invoke cloture on a motion to proceed to H.R. 5140.

Endorsements

The AARP, The Seniors Coalition, Veterans of Foreign Wars, the Military Officers Association of America, Vietnam Veterans of America, The American Legion, the United Spinal Association, and the Disabled American Veterans have all endorsed the Senate bill approved by the Finance Committee.

The National Association of Manufacturers has written in support of the Senate’s NOL proposal.

Statement of Administration Policy

On February 4, 2008, the White House issued a Statement of Administration Policy (SAP) in support of the House-passed version of H.R. 5140, stating:

“The Administration supports Senate passage of H.R.5140, the bipartisan economic growth compromise as passed by the House, without delay.  This legislation meets the criteria set out by the Administration that an economic growth package be large enough to make a difference, immediate in its impact, broad-based, temporary, and based on tax relief rather than government spending programs.  The Administration commends the House for taking swift, decisive bipartisan action to improve the Nation’s near-term economic outlook by passing the compromise bill with such an overwhelming bipartisan majority.”

The SAP is available here.

Related Reading

Congressional Research Service, Economic Stimulus Proposals for 2008: An Analysis, available here.

Congressional Research Service, The Recovery Rebates and Economic Stimulus for the American People Act of 2008 and Jumbo Mortgages, available here.

Congressional Research Service, Extending Unemployment Compensation Benefits During Recessions, available here.

Congressional Research Service, Federal Taxation of Aliens Working in the United States and Selected Legislation, available here.

Congressional Research Service, Proposed Changes to the Conforming Loan Limit, available here.

Congressional Research Service, Tax Rebate Refundability: Effects and Issues, available here.

Congressional Research Service, Tax Cuts for Short-Run Economic Stimulus: Recent Experiences, available here.

Congressional Research Service, Tax Cuts and Economic Stimulus: How Effective Are the Alternatives?, available here.

Congressional Research Service, Using Business Tax Cuts to Stimulate the Economy, available here.

Congressional Research Service, Government Spending or Tax Reduction: Which Might Add More Stimulus to the Economy?, available here.

Congressional Research Service, Federal Income Tax Treatment of the Family, available here.

Democratic Policy Committee, Special Report, Middle-Class Life Under Bush: Less Affordable and Less Secure (January 25, 2008), available here.

Democratic Policy Committee, Fact Sheet, Senate Democrats are Committed to Protecting the American Dream of Homeownership (December 17, 2008), available here.

Joint Committee on Taxation, Overview Of Past Tax Legislation Providing Fiscal Stimulus And Issues In Designing And Delivering A Cash Rebate To Individuals, JCX-4-08 (January 21, 2008), available here.



[1]    In December 2007, Alaska, South Carolina, Mississippi, and Michigan had unemployment rates of 6.5 percent or above.

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