As part of the fiscal stimulus, President Obama touted his Making Work Pay tax credit. And, as with so many things, it seemed to be ignored once the stimulus passed. (It's something like a 200 billion tax credit.) So, the deal is that if you're single and make up to 75,000 or married and make up to 150,000 you get a tax credit of $400 if you're single or $800 if you're married. The idea was to spread this out over about twelve or eighteen months, so each person would get either about $25 or $50 a month. Fair enough. You can debate about the idea amongst yourselves, but the point is that it passed. So, there was no big trumpeting of when it was supposed to go into effect. Back in February, the administration said that you would start seeing the effects of the tax credit in the summer. Sure enough, in late April, the IRS made changes to their withholding policies to take into account the tax credit. So, the tax credit was to be administered through payroll withholdings....
....does anyone see the problem? First question you should ask if you're giving money to people by substracting from taxes is...what about those who do not have money withheld? Remember, I'm not about debating the idea behind this (because I imagine there are some people who think that the only people that should get the 800 dollars are those who have withholdings and that people who do not have withholdings i.e. the poor, maybe should not get the 800 dollars. for the record, I disagree, but this is about desigining a policy). Remember, those who are not having any money withheld are not just the poor but can be people probably up to about 250 percent of poverty or higher, depending on how many kids they have (because of the additional child tax credit that can wipe away a lot of owed taxes). Anyway, you have a whole slice of the working population that is very vulnerable at the time of an economic downturn, who could certainly use an additional $50 a month...but it turns out that if you have NO income withheld from federal taxes, you do NOT receive the tax credit until you file your taxes for 2009. So, bascially, you can have a family making 120K a year who's receiving the tax credit each month, for whom the 50 bucks a month is a fraction of their overall paycheck and you could have a family making 40K who is not receiving the tax credit. Even more problematic is that a) the 120K family is receiving the credit automatically, while the 40K family has to make sure they remember to apply for it next year in their taxes. Which means that some people won't remember to do it. Remember, the Earned Income Tax Credit (which gives up to 4K a year for poor working families) does not have full takeup, especially for Hispanic families, despite a well-funded PR campaign. The Making Work Pay credit will have no such campaign, which means that there will be working families that should be getting the Making Work Pay credit that will not get it because they will not know how to get it. Good grief, as a policy guy, I had to really search around to figure this out. b) Poor families seem to be more likely to use this on spending for stimulus purposes than families where the credit is just a fraction of their overall income.
In sum, you have a policy that on face is supposed to provide an equal amount of money to every family making less than 150K, but, in fact, completely favors the middle class who have withholdings, and ignores the working class who do not. And no one cares. Why? Because every Congressional staffer, policy professional, etc. is too rich to be in the position to notice this happen. I imagine very few are in the position that they have zero tax withholdings. They see that they are getting more money each paycheck and pat themselves on the back for getting the money out to everyone. Those who are not receiving the credit are probably not in the position to know what they should be getting. I don't often pull out the whole "shame" language popular in Letters to the Editor, but, heck, here I go...*wagging finger at the administration* "For shame! Figure out how to effectively and justly administer a stimulus!"
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