If something sounds too good to be true, it probably is.
This week began with Congressional Democrats proposing a $750 billion stimulus package to mitigate the damage being done to the economy by the shutdowns (soon to be, lock-downs) over COVID-19, the Coronavirus.
By the end of the day on Tuesday, the proposal had reached $1.2 trillion.
On Saturday, the Wall Street Journal reported that final package being negotiated in the Senate could exceed $2 trillion.
At various times throughout this back-and-forth, direct payments to suffering Americans have been $0, $1000, two checks of $1000, and most recently, $1200.
That final figure is the one referenced in the package the Senate appears to be coalescing around.
The proposal, first unveiled by Senate Majority Leader Mitch McConnell (R-KY) on Thursday would issue payouts of $1,200 to individuals, $2,400 to married couples and $500 per dependent child.
But here’s the part that most Americans did not see coming.
The McConnell proposal calls for giving Americans that money as an advance on a future tax refund.
In other words, this is not a giveaway, or socialism, or some act of generosity.
The government is not giving you money; it is giving you an advance on the tax refund you would be expecting in 2021.
For example, say you’re a married couple with no children and you receive a check for $2,400 now. Next year, if you’ do your taxes and you’re supposed to get a refund for $2,500, the tax form would have a line where you list the stimulus payout you received in 2020. The IRS would deduct that $2,400 and give you the net difference of $100 as your 2020 refund check.
This is also how the process worked as part of the Economic Stimulus Act of 2008, although the advances then were $300 for individuals or $600 for couples.
The government could choose to issue the payments as a gift, but even gifts come with strings attached. The checks would be considered taxable income and recipients would owe taxes when filing their 2020 tax returns. For a married couple with two children (receiving a $3,400 gift), would incur a tax hit of nearly $750 if their household income was $80,000.
The McConnell proposal effectively loans taxpayers their own money, a loan that will not come due until after both McConnell and President Donald Trump have stood for re-election in November.
If they win, why would they care about consequences? The 2020 cycle is certainly the last time either will appear on a ballot (Trump is term limited; McConnell would be turning 84).
If they lose, the incoming Democratic President and Senate Majority Leader will be left holding the bag.
UPDATE 3/25/20 9:30 AM
Early Wednesday morning, Senate and White House leaders reached agreement on the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act for short.
The legislation included payments of $1,200 for individuals or $2,400 for married couples, with addition payments of $500 per child.
While it remains unclear whether the legislation will categorize the funds as a loan (advance against future tax returns) or a gift (and thus taxable income), the legislation closely mirrors the 2003 and 2008 stimulus efforts which provided the payments as an advance.
The legislation is due for a Senate vote on Wednesday with a House vote expected in coming days. If it passes and is signed by President Trump, direct deposits could start hitting as early as April 15th, with paper checks taking longer.
More information on what made it in to this revised version of the package can be found here.
UPDATE 3/27/20 9:00 P.M.
President Trump signed the CARES Act into law Friday evening after passage by the House and Senate. A full explanation of the stimulus for taxpayers that made it to the final revision can be found here.