Tax Rebate checks really not all they are cracked up to be?

Tax Rebate checks really not all they are cracked up to be?

Something caught my eye on the recently passed stimulus package that will be sending everyone $300-$600 rebate checks this May. In the article it says

The checks are an advance on next year’s refunds, and most, if not all of the money, will be deducted from taxpayers’ refunds in 12 months’ time.

Which if I’m reading that right essentially means the government is just giving you a 12 month repreive on paying those taxes in and essentially you can expect your 2008 tax bill to be $300-$600 higher because they aren’t actually giving you money (as if the government can *give* you anything) – they are just giving you a 12 month advance that needs to be paid back next year.

Am I reading this wrong?

Edit: CNN has since removed the sentence that I quoted but if you google that sentence you will get a lot of people that picked up on the same thing I did. Also here is a MSN article that basically says the same thing.

Remember, this is your money you’re getting back, and the rebate checks are basically an advance on your 2009 refund. When similar rebates were sent out in 2001, said tax expert Mark Luscombe, “a lot of people were upset to see their (next) refund reduced.”

So basically to me this is pointless and short of earning a few bucks in interest myself it is a huge waste of time an effort by the government and I think they are being very short sighted – which we know when it comes to the economy/stockmarket/finances usually hurts you in the long run.

  • Laurie

    Hi, I looked at the article this morning and again when I ran across your blog and that quote you have highlighted was there. It is now 10:50am Pacific time and it appears that the article has been altered and it is no longer there.
    Laurie

  • Looks like the article has changed since you read it. Your quote is still indexed by google news, but I cannot pull the article in its original for.

    Mistake that made it through editorial review maybe?

  • Interesting. I beleive your thoughts are correct. It’s kind of funny since it seemed as though they were making it sound like free money.

  • MFJ

    Sure enough Laurie – looks like they took that verbage out. I guess maybe that it was not true – as if it was I would have thought people would have been calling their bluff a lot more.

  • MFJ

    Yeah if you google for “The checks are an advance on next year’s refunds, and most, if not all of the money, will be deducted from taxpayers’ refunds in 12 months’ time.” you will get a bunch of results of people pointing out the same thing I did and then questioning whether they were indeed crazy after CNN removed it 🙂

  • I don’t trust CNN in the least *not* to edit-out an embarrassing quote that calls the whole stupid boondoggle into question. This “stimulus” is like taking a bucket of water out of the deep end of the pool and pouring it into the shallow end.

  • Bob

    Actually, I think what we really have is a tax cut for the 2008 tax year. Instead of having to wait for a year to get the cut, we get it in May. So your refund next year will be less, but your tax liability will be the same. This is how it worked the last time we got the “prebate” checks. I hope this made sense.

  • It is not a tax rebate when people who haven’t paid taxes are getting a check.

    It is not a tax rebate when not all of the people who have paid tax are getting a check.

    It is not a stimulus for our economy when most of the funds will wind up, through Hillary’s friends at Walmart, in China.

    It is not a stimulus for our economy in that I thought we had gotten past the old Keynesian theory of deficits stimulating the economy. We already have a $200 billion deficit– how will more debt help?

    If we are going to insist on burdening our children and grandchildren with more debt, the least we could do is build or repair some roads, or bridges, or help end our dependency on foreign oil by building more refineries or by slapping solar panels on every flat roof in America– something that will help the next generation.

    Anyone receiving this check should know what it is– a welfare check drawn on our children’s checking account.

    This isn’t just sour grapes–and on other sites I’ve received a lashing that anyone earning over $75,000 “doesn’t need” a rebate. That’s not the point. If the government is doling out a check based on “need”–then guess what? That’s welfare. And they should have the guts to call it what it is.

    Shame on every politician that supports this wasteful giveaway, and shame on every person who cashes the check.

  • Genoa Giles

    It is also a way for each consumer to spend (hoped by the government) $300 to $600 more. So instead of manufacturing more money and causing more inflation, they give the money to us to place into the economy, thus making it appear that spending is up and the economy is not recessing, but flourishing.

  • MFJ

    @Tony – I pretty much agree with everything you said, except for the part about shame on people who cash the checks……of all the stupid things the government does when it takes money away from people I can think of a lot worse things than giving some people some of their money back, but to your point about it being more welfare and wealth redistribution than a rebate is well taken.

    @Genoa – The government certainly doesn’t have the money to return so they are either going to be borrowing the money from China to Tony’s point which is where most of the money will be spent on Chinese goods. That or the Fed will just fire up the presses and print some fresh new bills which to your point would cause more inflation.

    I don’t see why the government thinks they can spend their way to wealth.

  • JRich

    It is an advance on a rebate that will be in your 2008 taxes. So, your net taxes will be lower for 2008, but you are getting the deduction now instead of later.

    So, on your 2008 taxes there will be a credit for the ammount of your check and then a debit equal to the check you got, netting out to zero.

    The check you will get will be based on your 2007 filine status (AGI + children) The important thing to considder is that this means your 2008 filing status is the altimate determinant of eligibility. so if you have a child later this year or decrease your income, you could stand to get an additional ammount back at tax time.

    Example. My AGI is about 85k for 2007 and I have 2 kids. But we will have another child late this year. So, my rebate check will be $1800 but in 2008 it will be determined that I am eligible for $2100. So my 2008 taxes will have a -$1800 and a +$2100, resulting in an extra $300 refund.

  • It’s not necessarily a bad thing that the government rebates you next year’s tax now, if now is where the ‘pain’ is. It’s the same principle as borrowing to go to college, because you’ll be able to pay it off when you have a great job later.

    The trouble IMHO is that the US has been pulling this trick for a while, however, hence the deficits. If the US Government had paid down debts in the past few years of plenty rather than allowing them to balloon, they’d have a lot more flexibility.

    Hard to control that sort of thing as an everyday investor though. (And I don’t see any of the candidates really talking about cutting taxes/spending much).

  • 300-$600 rebate checks. Most people will use these to pay debt or straight into savings. If they really want money spent, send gift cards instead! Rebate thing is just a bandaid solution to buy votes.

  • citizen10

    The money is actually a loan from the Fed Resrv forced on most people. It will be paid back with interest by everyone. Money is only created when a debt is made and they are making a debt by forcing a loan on people.

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