The above pretty much says it all. I keep meaning to write more on tax reform, and earlier today on twitter, Reihan Salam refernced a link to an article by a group calling itself Citizens for Tax Justice, “Making Work Pay Credit More Effective and Affordable than Other Types of Tax Cuts.” And right now I’m waiting for the network log-in process to complete, so I’ll write out my thoughts. . .
As background, “Making Work Pay” was a component of the Stimulus Bill that provided $400 per taxpayer ($800 for joint filers). The IRS explains:
In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act of 2009 provided a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. Most wage earners benefited from larger paychecks in 2009 and 2010 as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit.
Now, the whole point of this “tax credit” was to put money in Americans’ pockets, with the idea being that they’d go out and spend it and rejuvenate the economy, based on mythical notions that a multiplier effect would be like a second go-round of the Miracle of the Loaves and the Fishes. In terms of practical effect, it was the same as if the government had simply cut checks for everyone (and, to the extent that there is any validity to the multiplier concept, the government would have been better off doing the latter, so that people would have seen it as “found money” and spent it on an extra rather than daily bills).
But any sort of element in the tax code that’s functionally no different than a government benefit, and just happens to be administered through the tax code, is not really a part of the tax code at all, much less a “tax cut.” This goes for the child tax credit (otherwise known as a Child Benefit in Europe), tax credits (existing and proposed) for higher education, tax credits for alternative energy/hybrid cars, and even the Earned Income Tax Credit. (What about “refundable” vs. “nonrefundable” tax credits? I’d say this holds true for both, even though, if your income is low enough and family size high enough, you may lose out, but a case could be made for differentiating between them.)
Now, I’m not saying that any one of these in particular, or all of them, in general, should be scrapped. I’m just saying that they should not be thought of as part of the tax code, or as ingredients in tax reform. These are not “tax expenditures” — they are government expenditures, period.
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