Economic Stimulus Act of 2008

Economic Stimulus Act of 2008 Brief Overview of the Economic Stimulus Act of 2008

The Economic Stimulus Act of 2008 was an attempt to forestall the spiraling of the United States economy into a recession, or into an increasingly deeper recession, depending on one's point-of-view at the time. Unlike the current stimulus bill created by the Obama Administration, tax cuts rather than spending were the emphasis of the Bush Administration's Economic Stimulus Act of 2008. Most working people received $600 if they were single or $1,200 if they filed a joint return, "assuming they paid at least that much in federal income tax in 2007. To help people who earn little or nothing -- and might be more likely to spend their rebates -- Congress said that anyone who had at least $3,000 in income from a job, self-employment, Social Security and/or certain veterans benefits would get a flat rebate of $300 if single or $600 if married filing jointly, even if they don't owe income tax" (Pender 2008).

Indicate if this Act could be considered "fiscal policy" and why.

While previously the Bush Administration had tended to emphasize monetary policy through the Federal Reserve Bank in its manipulations of the economy, this Act is clearly an example of fiscal policy. The primary tools of stimulative fiscal (government) economic policy are spending and tax cuts. Spending involves hiring individuals to work and thus infuses more cash into the economy (the technique of the 2009 Stimulus Act) or taxation, whereby giving individuals and businesses tax cuts means they have more money to spend, therefore stimulating the economy. To curtail inflation, the government will traditionally spend less money and increase taxes, thus taking more money out of circulation in the economy through the tools of fiscal (versus monetary) policy.

Describe the economic intent of the Act and how it might impact the business cycle and aggregate demand.

The intention of the Act was to stimulate consumer spending. It focused on lower and middle income Americans, who might be more apt to spend rather than invest or save their tax refund. In other words, a wealthier individual might not hesitate to make a large purchase at any time, regardless of tax policy. But a lower or middle class individual who had been putting off necessary repairs, payments, or other large purchases could not do so, because of a lack of funds. Having received the rebate, the recipient could now spend it on a vital purchase. Some individuals would even receive rebates who had never filed taxes before because their income was so low.

When individuals make purchases, particularly large purchases, cash is infused into the economy. Inventories that have been piling up because of consumer fears of a likelihood of a recession go down. Businesses hire new workers, stimulating both job growth and the purchasing power and confidence of the American consumer. Aggregate demand increases, and the business cycle evades entering a recessionary trough.