Now that many have already received their economic stimulus payments, and have figured out what to do with it, I’m seeing a lot of questions asking “Will the stimulus payment need to be paid back?”
The quick answer is no. According to the IRS the economic stimulus payment is not taxable and will not reduce what you may be owed in a tax refund for 2008 (filed in 2009). In fact it’s possible that you get more back next year, if you didn’t already get the maximum, based on next year’s return. See the amount was based on your 2007 return so if you didn’t qualify for the full amount you may still qualify for the difference based on your 2008 return. Don’t worry if you received the full amount already. No matter what your 2008 return says you won’t have to pay anything back.
Now the the longer answer – You are going to have to pay back the economic stimulus payment! In some way, shape, or form we will pay that back. The money has to come from somewhere.
Let’s look at the ways in which the gov’t receives income:
- Taxes (from income and corporate taxes).
- Loans (in the forms of government backed securities such as bonds, bills, and notes).
- Printing more money in the treasury.
Which do you think the money will come from? Printing money sounds like an easy way to find the dough but it’s not a policy the US uses due to the fact that more money creates inflation (Inflation is always and everywhere a monetary phenomenon – thank you Milton Friedman). And who wants even higher prices?!? We can issue more loans. Did you know that in 2006 we paid $406 Billion in interest payments on loans made to cover the national debt? Where does that money come from? See above. So that leaves us with taxes.
Yes, I believe we will be paying back the economic stimulus payments in the form of taxes. It may not be as one lump sum like we received it but it will be paid out. It’s just lumped together with the rest of the national debt.
Could this be avoided? Maybe. But only if the national debt, which is over $9 Trillion, is reduced to zero in our lifetimes. This would mean that government would have to cut back it’s size and spending. Most likely many programs that help people would fall victim to the cuts. I’m not saying it’s impossible for this to happen, just improbable. I hope I’m wrong.
Of course another way to look at it is it won’t be us but our kid’s generation that will pay it back. I’m not too sure that’s a positive spin on it though.
So there you have it! Do we have to pay the economic stimulus payments back?
No, but yes.
What do you think?
Update: There has been a lot of confusion over paying the Economic Stimulus Payment back. Please read Paying Back the Economic Stimulus – Lots of Tax Confusion for more information and clarification!
photo by Refracted Moments