Essay - Economic Stimulus Act of 2008 with the Subprime Crisis Looming...

Economic Stimulus Act of 2008

With the subprime crisis looming, the Bush Administration signed into law the Economic ***** Act of 2008 on February 13, *****. The act had three main components - tax rebates for individuals, tax cuts for businesses and increases in the limits for mortgages eligible for purchase by Fannie Mae and Freddy Mac. Individuals received the bulk of the benefit ***** this bill. The IRS determined the rebates based on the 2007 tax return. The structure of the bill was unusual in that it basically represented a tax cut, but *****stead of giving ***** money on the 2008 ***** refund a year later, the government gave it out in cash in *****. On ***** business side, the tax breaks related mainly to depreciati***** expense. New rules with respect to depreciation allowed companies to reduce their net incomes for the year, there***** also reducing their tax burden. The Fannie and Freddy limits were a response to the subprime issue and more or less un***** to ***** ***** of stimulus.

In a roundabout way, the 2008 Economic Stimulus ***** ***** an act of fiscal policy. Fiscal policy pertains ***** government policies that influence the economy on a macroec*****omic level. Typically, tax policy is included in ***** policy because it ***** directly to the money supply. In ***** case, the tax rates did not change, ***** the ***** was billed a ***** rebate. Tax rebates are a *****ol that functions ***** same as a decrease in tax rates, but can be used on a *****e-time basis. Given the negative optics of lowering rates for a ye*****r then *****ing them the next year to the previous level, it is reasonable ***** a rebate ***** used as a form ***** ***** policy.

Certainly the new rules regarding ***** are tax policy and as with the stimulus checks are de***** to incre*****e spending levels, putting more money into the system.

The intent of the act ***** to increase spending by increasing ***** amount of money consumers and businesses had to spend. The theory was that ***** giving ***** tax *****, aggregate *****mand could be *****d. This in turn would, along with the corporate tax cuts, give firms ***** confidence to increase ***** own spending. When the bill was being drafted, ***** economy was not yet in a state of *****tal devastation, ***** there ***** signs of a pend*****g recession. By drafting a bill th*****t would increase aggregate demand, it was hoped by that business cycle could be forestalled or reversed. The government ***** not view recession as inevitable at the time. Rather, they felt that with sufficient increase in aggregate *****, the recession ***** be averted. As we have seen, ***** recessionary conditions at the outset ***** 2008 were merely the tip of the iceberg and ***** stimulus package was therefore woefully inadequ*****e.

The hope, though, ***** that the mul*****lier effect would take hold. If consumers spent more, companies would be ***** profitable. If companies were more profitable, they ***** invest more,