Tax Brackets

President Bush and U.S. House leaders agreed last week to a tentative economic stimulus package that will inject $150 billion into the country’s struggling economy. The proposal is scheduled for a vote in Congress this week. A lot of media attention has been placed on the plan’s objective to disperse rebate checks ranging from $300 for individuals who did not pay federal income tax but who earned more than $3000 last year, $600 per couple; $600 to individuals who paid income tax, $12,000 to couples filing jointly, (including an additional $300 for each child). However, it is the benefits left off of the package that economist Algernon Austin believes might actually hurt most low- and average-income blacks.

Austin, the director of the race, ethnicity and economy program at the Economic Policy Institute, notes that the plan excludes aid to state governments, funding for infrastructure projects, extending unemployment insurance, and increasing food stamp benefits and Medicaid payments to states. “These types of policies will disproportionately benefit black Americans because blacks are disproportionately poor and low-income,” Austin says.

“This is a very weak stimulus package” Austin says. “The plan does not do enough in terms of meeting the needs of average Americans. The benefits are skewed toward higher-income individuals.”

According to Austin, roughly 20 million households, mainly low-income seniors, will not receive any rebates because they do not earn enough money and are not required to file tax returns.

He says that without aid from the federal government, state economies, some which are already faltering, will begin to cut back social service programs such as Medicare and SCHIP (State Children’s Health Insurance Program) at a time when a recession is going to increase the demand for these particular programs. On the other hand, repairing bridges and schools and various other infrastructure projects would directly produce jobs.

R. Donahue Peebles, chairman and CEO of the Peebles Corp. (No. 13 on the BE INDUSTRIAL/SERVICE 100 list with $403 million in sales), a real estate and hotel conglomerate, agrees that economic growth depends on customer spending, but he suggests that we need people in the middle to higher tiered income-earnings brackets to come back into the marketplace since they do the most spending.

“It is important that people who have jobs start spending, by traveling, staying at hotels, and consuming products so that people in the service industry can have work,” he advises. Peebles also believes that accelerated depreciation, one of the bonuses the plan extends to business owners, will encourage businesses to invest in new equipment.

Some argue that corporate tax breaks have a limited effect. “A growing economy is better for businesses than additional write-offs, which won’t mean much if the economy continues to decline,” Austin says.

Peebles insists that the housing rescue arm of the stimulus package will drive economic momentum. “It is important that we have a vibrant real estate industry because [housing] is the one last major product that we manufacture here,” says Peebles.

High capital gains