Does this mean what I think it means? From CNN:
The (tax rebate) 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.
If this is right, the vaunted "rebates" are in fact loans to be repaid on next year's taxes. So I'm going to get a check that I haven't asked for, and that check is going to increase my tax liability next year, and for this I'm supposed to be grateful?
Can this possibly be true, or is it some kind of misprint?
UPDATE: Sharp-eyed reader Teri notes that the curious sentence quoted above has been removed from the article. Hmm...
UPDATE: OK, I've been hunting around and no one seems to know the answer to this. David McPherson writing at ABC News has this:
Question: "Have I understood this wrong? Is the tax rebate in all actuality an advance on our refunds next year? Does it mean that if we spend this money now that we won't get the money back next year?" Colleen in Liberty, Miss.
McPherson: Colleen, it is unclear to me exactly what the impact will be on our 2008 tax returns, but clearly there will be some effect. I can tell the proposal as outlined so far calls for the rebates to result from a cut in 2008 taxes even though the rebates will be based on 2007 tax figures.
The proposal calls for the existing 10 percent tax rate on the first $6,000 in income for a single person and the first $12,000 for couple to be cut to 0 percent for 2008.
In 2001, when there was a similar tax rebate, taxpayers received checks between July and October. If the check received by a taxpayer exceeded the amount of credit a taxpayer qualified for, then the taxpayer was permitted to keep the excess, according to the Congressional Joint Committee on Taxation.
If the rebate is, in fact, the result of a temporary tax cut in the future, then it should roughly balance out. (Assuming Congress does the math right, which it never has, but let's be charitable, shall we?) This would seem to me -- and I gave up balancing my checkbook years ago -- that the rebate is going to require some increase in taxes at higher incomes to balance-out the lower taxes on the first $6,000 of income, eliminating the rebate for people whose income rises above the rebate-eligible threshold.
There would also seem to be a built-in equalizer. That is, because rebate eligibility is based on 2007 income and the rebate itself is compensated for on the 2008 return, the actual net tax savings will be based on income we've yet to receive. If our income goes down, the net tax savings will automatically go up; if income rises, the net rebate will drop as we move into the temporarily higher tax bracket. All of this may be entirely transparent, cooked into the tax tables distributed by the IRS.
Also, I'm thinking of putting together a betting pool on how much of this I get wrong. Any takers?
UPDATE: Hook & Ladder "The Tillerman" 2004. Kind of an American Super-Tuscan. Cab, Cab Franc and Sangiovese from the Russian River Valley. Zingy acidity, mild tannins, bright fruit. It's not a wine for aging, but it goes great with Internet research.
UPDATE: An interesting question is why Congress and the White House are choosing to do the rebate this way. I'm guessing it has to do with pushing the increase in the deficit into the future where it's harder to see. But then, I'm cynical. There may be a perfectly benign reason.
UPDATE: My head! It's spinning! I'm actually drawing little charts to try to figure out which tax brackets would have to go up and which would have to go down to make all of this work. My wife looks worried about me. Any tax accountants out there? Or, at least, anyone who remembers the previous rebate and how it worked?
UPDATE: Here's a short, sweet explanation of the 2001 Tax Rebate. This may be the pattern the 2008 Rebate is going to follow.
UPDATE: David Milstead of the Rocky Mountain News apparently had all this sussed-out a couple of weeks ago:
Already, we are calling the Bush administration plan to give households $800 to $1,200 in cash a "tax rebate," much as the smaller 2001 checks were described.
That was a misnomer. The summer 2001 "rebate" checks were not a rebate of taxes paid the previous April, as many thought. Instead, they were an advance on the refund taxpayers were going to get in April 2002.
That meant refunds in April 2002 were $300 smaller than they would have been without the summer 2001 checks. And those who owed taxes faced a tax bill $300 higher.
That's the conclusion I came to after multiple talks with the Internal Revenue Service, which had been careful not to use the word "rebate" in any of its official documents.
As to the mystery of the disappearing CNN reference to the "rebate" being an advance on future tax refunds (or, as I outlined a couple of updates ago, a pre-payment of a future temporary tax reduction), this might be a clue:
IRS officials gamely answered my questions and showed me how the mechanics of the rebate worked. The resulting story moved on the national wires - and the Treasury Department public-relations staff let me know they disliked my interpretation of the matter.
The Treasury Department is, of course, lousy with political appointees, and the rebate seems much more a political than economic act, so it's not surprising that the IRS would view it as one thing while the Treasury Department viewed it as something else entirely. Perhaps someone at Treasury got to someone at CNN and demanded some kind of correction.
UPDATE: Apparently I'm not the only blogger whose head is spinning.
UPDATE: Crisis over. CNN cleans up the mess it created and -- I say this with a certain drunken pride -- I was remarkably right in my theoretical accounting.
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.
"If you were supposed to receive a larger payment than you did, you will get the extra money," said Treasury spokesman Andrew DeSouza. "If you received more than what you should have gotten, you will not be penalized."
I wonder if there's more wine in the basement?