With the stimulus package details finalized, President Obama proudly announced the fastest tax break in history, which will begin to reach the middle class’ pockets after April 1. You’ll get the full impact of the tax reduction if you make less than $150,000 a year as a couple, according to the new IRS tax rates.
Consequently, over the next year, our wallets will be carrying around an extra $35 a month to use as we please. The purpose of the bill approved on February 13 is to motivate consumers to spend a little more to boost the flagging economy. How well will this work and what is one to do with the extra money?
What Should I Do With My Stimulus Tax Credit?
Although we’re not getting a stimulus check, we are receiving a tax credit, and the big question of course is whether we’re inclined to spend it. Though economists may want me to spend the money, this is not necessarily what I’m planning to do.
If everybody rushed to the mall to spend $35 every month, the economy would certainly enjoy some kind of revival. But how big? Multiply this amount by 138 million tax payers and you get close to $55 billion dollars forked over to businesses over the next year. Our GDP (Gross National Product) or the total amount of everything produced in the country stands at $14 trillion (2008); so is $55 billion enough to get us back on our feet? Of course not. The rest has to come from what we export (11% of GDP) and what we normally consume. But since most of the world is suffering a recession, they also stop importing as much from us. In other words we are going through a vicious circle with seemingly no end in sight.
Awesome image by Walt Handelsman
Should I Spend Or Save My Tax Break? Taking Care of Me First
Unfortunately, as is the case in every economic crisis, most people will become selfish, and look out for their families first. Human nature has it that given the choice between feeding our neighbor and feeding our family, you can guess what the great majority of people will do. It would certainly be awesome if we could do both! I therefore predict that a lot of people will be hanging on to the extra bucks with a tight grip.
I also don’t think that this puny tax break of $800 per family over the next year will make much of a difference to the global economy. My tendency, for example, is to add this “windfall” to my savings in secure investments. For those carrying debt or who own a house, it would be financially wise to add it to your mortgage payments or emergency fund by banking it in a high yield savings account.
Should we rethink the tenets of responsible personal finance and how it applies to us, because our economy is tanking? If we spend our tax credit, it will be for the “greater good” of our overall economy, while if we save the extra bucks, the stimulus tax break won’t be as effective. But with all the ridiculous behavior we’ve seen going on in Washington, Wall Street and trickling down into Main Street, spending to save the economy just because someone else expects us to do so should be the last things in our minds.
How we use our tax credit depends on our specific circumstances and financial situation; it’ll depend on how we decide to use the money to look out for #1.
Stimulus Package Tax Deductions For A New Car, But What About Medical Bills?
The tax relief bill also includes a tax deduction for new car buyers (who make less than $250,000 as a couple). That’s good, but how many people want to increase their total debt in these trying times? Still, it’s great news for consumers — this kind of provision is here to reward big ticket spending.
Understandably, the stimulus package details can only accommodate so many provisions. But as a senior citizen, I want to put in a word for the older generations, and one thing that the stimulus bill (or any government bill or budget for that matter) fails to address properly is the enormous cost of medical bills, especially for older Americans.
If your total medical payments do not exceed 7.5% of your adjusted gross income, you can’t deduct anything. So if somebody has bills for $4,100 and makes $55,000 a year, he or she cannot deduct a dime, a serious injustice that hurts thousands of Americans. Care to posit why the stimulus bill avoided addressing our health care issues?
How Much Do You Plan To Spend?
We look upon what President Obama has done and despite all the gaps we may see in this stimulus plan, this package was a lot of work and is ultimately the result of much compromise. This program is a big balancing act that aims to make the biggest impact on as many people and parts of the economy as possible. It would be interesting to see if the people positively affected by the stimulus bill will uphold their end of the “bargain” and decide to spend in the way that they’re expected to do.
How are you planning to use your tax credit?
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