Can This Be True? (Now With Added Tax Rebate Updates, a Possible Explanation of Government Accounting, and Bonus Wine Review!)

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?

Comments

[NewMexiKen]

That's exactly what they did last time, too. For most it's simply an early 2009 refund.

[Teri]

That's what I wondered too. I went back to look at the article again and the sentence has been removed from the article. Take a look. It is gone now.

[Tom]

That's the thing. Everything else I've read says it's a rebate based on 2007 taxes.

[Karen]

The IRS has this comment on their webpage "The Administration and Congress have announced an economic growth package that would provide advance payments to many Americans.” So I'm wondering the same thing, and why are they presenting it as a rebate if its going to be an advance? I would think CNN would investigate this! The people need to know if their refunds will be reduced this amount next year...

[Ree]

Ok. I thought it was just me. I read the article on CNN.com and zeroed in on the statements made about the rebate check being advances. I was confused to say the least b/c everything I've read to-date has assured the public that these rebates have nothing to do with tax refunds, yet there it was in black and white. I left for lunch and was telling a co-worker about it, came back to show her the article and mention of the checks being advances had been removed. I knew I wasn't crazy and feel something weird is going on.

I don't want anything that I will have to later pay back, just keep it! Everything talks about benefit to us, the taxpayers, but I see no benefit in a 'loan'....

[Sinfonian]

Yep, I was confused. Still am, to some extent. But I like your idea: just have another glass of wine and maybe it won't matter after a while. ;)

Thanks for the linkage.

[Tom]

Actually, Sinfonian, my idea was to have another bottle of wine, but you've captured the spirit of the thing, anyway.

[SC4RP]

When have they ever told you the truth? There are some 16 million people who do not pay the IRS. Go to WE THE PEOPLE and learn how you are being ROBBED. They can not produce a law that states you must pay taxes.
NO LAW, NO TAXES!

[Squidley]

Tom,

Aren't you happy to have gotten another, different kind of, nutcase at your blog?

"I DONT UNDERSTAND THE 16TH AMMENDMENT! AND I DONT WANT TO PAY TAXES! SO TAXES ARE ILLEAGLE!!!"

Now I don't feel so alone. And aren't you lucky!

[Chuck Feney]

This new US Law, titled “Recovery Rebates and Economic Stimulus for the American People Act of 2008”, and to be signed into law by President Bush, does not, in fact, give any money at all to the American people, but instead is a loan on taxes for money earned by US citizens during 2008.
The deception by is contained in the very words used in this new law, and which says: “SEC. 6428. 2008 RECOVERY REBATES FOR INDIVIDUALS.`(a) In General- In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2008 an amount equal to the lesser of--`(1) net income tax liability, or`(2) $600 ($1,200 in the case of a joint return).”

The significance in understanding the exact wording of this new law, lies in the section name that states ‘rebate’ (a return of part of the original payment for some service or merchandise; partial refund), but in the actual wording of the law states that these monies are a ‘credit’ (an entry of payment or value received on an account) against imposed taxes for 2008.

This new law is, in fact, a deceptively engineered ploy by the United States to pump billions of dollars into their failing banking system as nearly half of Americans (currently staggering under a record $2.5 trillion in personal debt), in a new poll conducted by International Council of Shopping Centers and UBS Securities, have stated they will use these checks to pay off creditors.

An American economist, Peter Morici from the University of Maryland, has also noted the odd ‘coincidence’ that the amount of monies under this new law equal the massive losses incurred by US banks from their loan debacles, and as he states:

“It’s a good thing [US stimulus package] , but it’s not enough to head off recession. We’re talking about $150 billion, so this roughly offsets what the banks have lost” in soured housing investments."

The greatest affect of this new law upon the American people will be felt in 2009 when these ‘rebates’, given to them in 2008, will become due against their taxes, and which will push vast numbers of them into financial freefall.
An American married couple with 3 children would receive $1,200.00 for the man and wife with an additional $300.00 for each child, bringing the total to $2,100.00. But, with the average US Tax Refund amount being just over $2,500.00 per family, this exampled family would see no tax refund at all in 2009.