The real estate blog.

Yesterday I talked about the difficulty loan limit increases in the stimulus package would have in keeping mortgage rates low. Today I’d like to talk about the heart of the package; the checks.

From all the talk from the media, it sounded like we would be getting free money. We all know there’s no such thing as free money. I figured the money for the checks in the $170 billion package would come from higher taxes at a future date or from cutting spending somewhere else.

When Congress passed the package last Friday, the real details of the plan came out. These checks are the government wasting resources by cutting a check and handing us a cash advance of our own money…from next year’s returns.

I never had much faith in the “rebates” as I never got my $300 in 2001. But this year’s rebate is a big, steaming pile of Mr. Hankey. CNN reported Friday -

Do I have to pay the rebate back?

No. And here’s why.

Your rebate is a one-time tax cut - an advance on a credit you’ll receive on your 2008 return.

It’s based on your 2007 income initially. If it turns out that your 2008 income and number of children would have qualified you for a larger rebate than the one you received, you’ll be sent the difference. If it turns out your 2008 income was lower than in 2007 and you should have gotten a lower rebate, you get to keep the difference.I’ll bet millions of dollars in payroll and printing could be saved by exercising the “rebates” as what they are; a tax credit. An editorial in the LA Times noted:

You know this whole idea is a scam just by the fact that the government — which could just scale back what it withholds from our paychecks for a few weeks — is making such a big show of putting checks in the mail.

This is an election year and the government wants us to spend the money. They want to stick six hundred dollars of cold, hard cash in our hands and dare us not to save it or pay down debt with it. For many, it will be quite tempting. I know I could use a PS3.

Funny thing about the structure of this plan. We’ve got a President on his way out who’s spending the next President’s tax money to juice the economy today. He has no consequences to face and Mr. Bush is eager to sign the bill into law.

Experts predict the very thing this package is designed to do, stimulate the economy, won’t actually happen -

Economists generally agree that the economy should see a boost from the rebate checks. But most also agree that the full impact will be less than the total value of the stimulus package.

Leave it to the government to overpay for something.

If we can look positively at government’s efforts to stave off a financial crisis for a minute, we do know they’re trying to do something. The Fed has been willing to cut rates and Congress is willing to give out money. Whether it actually is the best thing or most effective action, we’ll probably never know.

At the end of the day I think the two key components of the stimulus package are unlikely to work. But if government efforts can get us out of this economic funk and back towards more prosperous times, it will have all been worth it.