Budget Report: H.R. 5140 [110th]: Economic Stimulus Act of 2008
The following is a report prepared by the Congressional Budget Office. It has been coverted to a text-only format below by GovTrack.
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CONGRESSIONAL BUDGET OFFICE
COST ESTIMATE
February 11, 2008
H.R. 5140
Economic Stimulus Act of 2008
As cleared by the Congress on February 7, 2008
SUMMARY
H.R. 5140 would provide a tax rebate to individual tax filers who satisfy specific income
requirements and special depreciation allowances to businesses. In addition, the act would
raise the loan limit for the Federal Housing Administration’s (FHA’s) single-family program.
The Congressional Budget Office and the Joint Committee on Taxation (JCT) estimate that
H.R. 5140 would:
• Decrease revenues by $114 billion in 2008 and by a net amount of $82 billion over
the 2008-2018 period; and
• Increase direct spending by $38 billion in 2008 and $42 billion over the 2008-2009
period.
In total, those changes would increase budget deficits (or reduce future surpluses) by
$152 billion in 2008 and by a net amount of $124 billion over the 2008-2018 period.
All of the provisions of H.R. 5140 are designated as emergency requirements pursuant to
section 204 of S. Con. Res. 21, the Concurrent Resolution on the Budget for Fiscal Year
2008.
ESTIMATED COST TO THE FEDERAL GOVERNMENT
The estimated budgetary impact of H.R. 5140 is shown in the following table. The spending
effects of this legislation fall within budget functions 370 (commerce and housing credit) and
800 (general government).
ESTIMATED BUDGET IMPACT OF H.R. 5140, THE ECONOMIC STIMULUS ACT OF 2008, AS CLEARED BY
THE CONGRESS ON FEBRUARY 7, 2008
By Fiscal Year, in Billions of Dollars
2008- 2008-
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2013 2018
CHANGES IN REVENUES
Rebates for Individuals -68.9 -6.1 0 0 0 0 0 0 0 0 0 -75.0 -75.0
Business Tax Deductions -44.8 -6.2 11.7 8.8 7.6 5.9 3.8 2.3 1.3 1.0 1.1 -17.0 -7.5
Total Revenue Changes -113.7 -12.3 11.7 8.8 7.6 5.9 3.8 2.3 1.3 1.0 1.1 -92.0 -82.5
CHANGES IN DIRECT SPENDING (OUTLAYS)a
Rebates for Individuals 36.8 3.6 0 0 0 0 0 0 0 0 0 40.4 40.4
Payments to U.S. Territories 1.0 0.3 0 0 0 0 0 0 0 0 0 1.3 1.3
Administrative Costs 0.2 0.1 0 0 0 0 0 0 0 0 0 0.3 0.3
Raising Loan Limits for FHA’s
Single-Family Program b * 0 0 0 0 0 0 0 0 0 0 * *
Total Direct Spending Changesa 38.0 4.0 0 0 0 0 0 0 0 0 0 42.0 42.0
NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS
Net Change in the Deficit or
Surplusc 151.7 16.3 -11.7 -8.8 -7.6 -5.9 -3.8 -2.3 -1.3 -1.0 -1.1 133.9 124.4
Sources: Congressional Budget Office and the Joint Committee on Taxation.
Notes: * = between -$50 million and zero; FHA = Federal Housing Administration. Components may not sum to totals because of rounding.
a. For all direct spending changes except administrative costs, budget authority equals outlays. The act provides $0.3 billion in 2008 for administrative
costs; CBO expects that funding will be spent over two years.
b. CBO expects that the FHA provision would reduce outlays by $14 million in 2008. (In addition, implementing the FHA provision would increase
offsetting collections by $7 million in 2009, subject to appropriation action.)
c. Negative numbers indicate decreases in deficits (or increases in surpluses); positive numbers indicate increases in deficits (or decreases in surpluses).
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BASIS OF ESTIMATE
JCT provided most of the estimates for the act’s provisions. Based on input from JCT, CBO
estimated outlays for payments to U.S. territories. In addition, CBO estimated the effects of
the administrative cost and FHA provisions. Both JCT and CBO assume that spending will
follow historical patterns for similar activities.
Revenues
Rebates for Individuals. H.R. 5140 would provide rebates to certain persons filing
individual and joint tax returns for tax years 2007 or 2008. For individuals with a positive
income-tax liability or a sum total of earned income, Social Security benefits, and veterans
disability payments of at least $3,000 in either of those years, such rebates would be between
$300 and $600. For couples filing joint tax returns, those rebates would total between $600
and $1,200. Additionally, individuals who are eligible for rebates also would receive a $300
tax credit for each child living in their household that would qualify for the existing child tax
credit under current law.
The amount of the aggregate rebate would begin to be phased out for individuals with an
adjusted gross income exceeding a certain threshold. Those thresholds are $75,000 and
$150,000 for taxpayers filing individual and joint tax returns respectively. Furthermore, the
rebates would not be issued to individuals who do not include their Social Security number
on their tax return. Those provisions also would affect direct spending, as discussed in the
following section. JCT estimates that the rebates for individuals would reduce revenues by
$68.9 billion in 2008 and $6.1 billion in 2009.
Business Tax Deductions. The act includes two provisions that would enable businesses
to take additional deductions for accelerated depreciation and immediate expensing of capital
purchases. JCT estimates that those provisions would have a net cost of $7.5 billion over the
2008-2018 period. Because much of the revenue effect of those provisions results from an
acceleration in the timing of deductions, initial revenue losses would be followed by revenue
increases in later years. CBO and JCT estimate that revenue losses totaling $51.0 billion
would occur in fiscal years 2008 and 2009, and revenue increases of $43.6 billion would
occur over the 2010-2018 period.
The first such provision would allow a business to partially expense (immediately deduct
from 2008 taxable income) an additional 50 percent of its investment in certain equipment
made in tax year 2008. In subsequent years, the remaining value of the property would be
subject to depreciation rules under current law.
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The second business tax provision would increase the deduction allowed under section 179
of the Internal Revenue Code for the cost of purchasing certain types of property. Under
current law, a business is permitted to deduct from taxable income up to $128,000 of the cost
of certain types of property purchased in tax year 2008 rather than spreading that deduction
out over future years through depreciation expenses. The $128,000 deduction begins to
phase out once the business’s property investment expenses exceed $510,000. H.R. 5140
would increase the deduction amount allowed for tax year 2008 and the phaseout threshold
to $250,000 and $800,000, respectively.
Direct Spending
Rebates for Individuals. Under the act, some individuals who would receive a rebate pay
no income taxes, or the rebate would exceed the amount of the income taxes they do pay.
Rebates that exceed an individual’s income-tax liability would be classified in the budget as
direct spending. As a result, JCT estimates that the rebate provisions would increase direct
spending by $40.4 billion over the 2008-2009 period (with no effects after 2009).
Payments to U.S. Territories. Section 101 would require the Department of the Treasury
to provide payments to the United States territories in an amount equal to the loss to each
territory from the payment of the individual tax rebate (as discussed earlier under
“Revenues”). In general, residents of U.S. territories—Puerto Rico, the U.S. Virgin Islands,
Guam, American Samoa, and the Northern Mariana Islands—are U.S. citizens but are not
required to pay federal income taxes. However, some territories have a tax system that
follows the U.S. tax provisions exactly, while others have their own tax system that differs
from the U.S. system. Those that follow the U.S. system would, under H.R. 5140, issue
rebates to eligible taxpayers. CBO expects that territories with non-mirror tax systems would
also meet the requirements of this provision by issuing rebates to their residents. Based on
data from those U.S. territories and in consultation with JCT, CBO estimates that providing
reimbursements to U.S. territories for individual tax rebates would increase direct spending
by $1.0 billion in 2008 and $0.3 billion in 2009.
Administrative Costs. Section 101 would appropriate $0.3 billion for the Internal Revenue
Service (IRS), Financial Management Service (FMS), and Social Security Administration
(SSA) to implement the provisions of H.R. 5140. Based on information from IRS, FMS,
SSA, and historical spending patterns for similar activities, CBO estimates that this provision
would increase direct spending by $0.2 billion in 2008 and by $0.1 billion in 2009.
Raising Loan Limits for FHA’s Single-Family Program. Section 202 would raise FHA’s
loan limit—the dollar amount of a mortgage that FHA can insure—for its single-family
program from 87 percent of the conforming loan amount to as high as 175 percent of the
conforming loan limit in certain geographic regions where the cost of housing is very high.
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(The conforming loan amount is the annual limit on the size of a mortgage that the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation can
purchase or guarantee.) Effectively, this would be a change from insuring loans of up to
$362,790 today to insuring loans of up to $729,750 in certain parts of the country. In less
expensive markets, the limit would be raised from 48 percent to 65 percent of the conforming
loan limit—a change from loan guarantees of up to $200,160 to loan guarantees of up to
$271,050 under the act. Additionally, FHA would have the authority to raise those loan
limits by up to an additional $100,000 if market conditions warrant such increases. Those
provisions would sunset on December 31, 2008.
CBO estimates that implementing those increased loan limits could result in about $10 billion
in additional FHA loan guarantees through December 31, 2008. Loans with higher loan-to-
value ratios for larger amounts are often more susceptible to an economic downturn in which
many homeowners experience a decline in the value of their home or a slower rate of price
appreciation. Consequently, some of those loans carry higher risks of default. CBO expects
that FHA would charge such borrowers higher fees (up to the maximum level allowed) to
ensure that the net cost of the single-family loan guarantee program remains zero during the
next few years. Thus, we estimate that raising the loan limits would result in no additional
cost to FHA.
The Government National Mortgage Association (GNMA) is responsible for guaranteeing
securities backed by pools of mortgages that are insured by FHA. In exchange for a fee
charged to lenders or issuers of the securities, GNMA guarantees the timely payments of
scheduled principal and interest due on the pooled mortgages that back those securities.
Because, under credit reform procedures, the value of the fees collected by GNMA is
estimated to exceed the cost of loan defaults in each year, the Administration estimates that
the GNMA Mortgage-Backed Securities (MBS) program will have a subsidy rate of
-0.21 percent in 2008, resulting in the net collection of receipts to the federal government.
CBO also assumes the same subsidy rate for 2009.
Because most FHA single-family loan guarantees are included in this MBS program, CBO
estimates that raising the FHA loan limit would result in additional collections to GNMA of
about $21 million over the 2008-2009 period. Of that amount, $14 million would be
recorded as savings in direct spending because the appropriation for GNMA’s commitment
authority for 2008 has been enacted. (The remaining $7 million would be recorded as
offsetting collections, subject to appropriation of commitment authority for the GNMA MBS
program in 2009.)
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PREVIOUS CBO ESTIMATES
On February 5, 2008, CBO transmitted a cost estimate for H.R. 5140, the Recovery Rebates
and Economic Stimulus for the American People Act of 2008, as passed by the House of
Representatives on January 29, 2008. On February 6, 2008, CBO transmitted a cost estimate
for the Economic Stimulus Act of 2008, as ordered reported by the Senate Committee on
Finance on January 30, 2008. The cost estimates reflect differences in the three versions of
the legislation.
ESTIMATE PREPARED BY:
Federal Revenues: Zachary Epstein and Pamela Greene
Federal Spending: Matthew Pickford and Susanne S. Mehlman
ESTIMATE APPROVED BY:
Peter H. Fontaine
Assistant Director for Budget Analysis
G. Thomas Woodward
Assistant Director for Tax Analysis
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