Save the Making Work Pay Tax Credit but Narrow It
While Washington seems obsessed with the fate of the Bush tax cuts, it has paid little attention to a soon-to-expire Obama tax cut: the Making Work Pay credit (MWP). Like the 2001 and 2003 tax cuts, this credit, which was enacted as part of the 2009 stimulus, is also scheduled to expire at the end of this year. President Obama has proposed extending it through 2011. But Congress has been largely silent about what it plans to do, in part because extending the credit for another year would reduce federal revenues by more than $60 billion
The fully-refundable MWP provides workers with a credit of 6.2 percent of earnings, up to $400 ($800 for married couples). The credit phases out at a rate of 2 percent of income over $75,000 ($150,000 if married). The credit was originally proposed as a worker subsidy based on individual earnings. As enacted, MWP follows the lead of almost every other provision in the tax code and is based on joint earnings in the case of couples. This year, the credit will deliver almost $60 billion.
When Congress was debating the stimulus bill, MWP scored TPC's top grade. That wasn’t because everyone here at TPC was excited to see Obama make good on his promise to cut taxes for 95 percent of Americans. The credit scored high because it did two things that TPC analysts felt were essential to economic stimulus: it raised take-home pay quickly via a change in the withholding tables (subject to some controversy) and it did so for people who would spend it. Of course, our enthusiasm for the policy was dampened by the fact that the credit went to many higher income families who would save much or all of it, rather than spend it and boost our then struggling economy.
Congress will soon have to get serious about dealing with the expiring tax provisions, and MWP demands a close look. Although I’ve previously advocated for an individual worker credit, MWP doesn’t fit the bill. It does, however, provide the only substantial work incentive for families without children that covers a reasonable range of earnings. (Childless families can also qualify for an EITC worth up to $457, but that credit applies to only a very narrow income range.) In the spirit of supporting work incentives while also recognizing our current fiscal situation, perhaps Congress should consider extending MWP only for low-income families. This might be just what the doctor ordered.
Yes, I agree with the above post. less centralise involvement would make way for a lower tax rate, which is ultimate what working families will be wanting. by bad credit John.
“…the credit went to many higher income families who would save much or all of it…”
I'm curious to know what Ms. Maag meant by that. Where would those higher income families save their rebates? Would they stuff it into their mattresses or a safe in the wall? Or would they invest in stocks or bonds, or put it in CDs or a savings account? I don't think the mattress is a likely choice, because most folks who earn a high wage are usually looking for ways to grow their money, and know money doesn't grow in a mattress. They'll invest it. And those invested dollars help our economy as much if not more than the dollars spent by lower income folks at retail outlets, by giving companies more cash to grow their business, which usually translates into more jobs and/or higher wages for its employees or more goods and services purchased from other companies. Even a bank savings account provides funds for loans which help individuals and small businesses grow, providing similar benefits to the economy as stocks.
So what is the downside of higher income earners “saving” their rebate money?
Volumerates is a very good wholesale site,it's cheap and fine.
The less central government gets involved the less taxes it needs to raise. Let communities deal with their own services.
Personally, I think they should double (or triple) it and pay the next half in November as a rebate.