This is part one of three pieces I'm putting together in celebration, dread, anxiety, relief, stress recognition of tax day. If you are curious about some more detailed, substantive tax policy from my perspective, explore this and this.
One of the policy areas that has translated quite smoothly from the presidential campaign has been implemented as the Making Work Pay tax credit through ARRA '09 (the stimulus bill). The rhetoric really is quite straightforward. President Obama and Congressional Democrats cut taxes for 100 million working families (give or take). That's called beating the GOP at their own game.
Past the framing, then, let's take a look at it in a little more substantive detail.
Hopefully you've all filed your Making Work Pay tax credit form, but just in case your eyes glazed over when you signed the stuff your accountant put in front of you, the tax credit was basically* a flat payment of $400 per worker (so, $800 for a married couple filing jointly). For those workers whose employers withhold taxes for quarterly 941 filings, employers readjusted withholdings based on new IRS tables so that the take home pay of workers was higher throughout the year. You get to figure it yourself if you're self-employed, and if you and your spouse made over $190,000, you're not eligible ($95,000 for single workers).
As far as tax policies go, this is pretty efficient. By affecting take home pay, it gets into people's hands very quickly. By phasing out at higher incomes and being a refundable credit (as opposed to a nonrefundable credit or a deduction), it's got a progressive core to it.
So the main question is whether it's worth it?
If we use a ballpark guestimate and say that 130 million Americans will claim the credit, at $400 a pop, that's a little over $50 billion. If we generated more than $50 billion of societal welfare, then we can call it a winner. And if this program is valuable, it leads to a natural follow-up question: should we be doing a lot more of this kind of thing?
Unlike giving money to large financial institutions, putting money directly in people's pockets does affect the level of economic activity. As many have described, trying to 'force' credit markets to lend when they don't want to is a lot like pushing on a string. And at any rate, people don't need more loans (private sector debt is the core of our problem, after all); people need more wages - specifically, more take home pay.
However, this still has to be paid for. Or to say it differently, it's only a tax cut if $50 billion worth of revenue is raised from somebody else or cut from some spending program. If the private sector simply buys $50 billion worth of Treasury securities, then it's a loan, and if the Federal Reserve buys the Treasury securities, then it's inflationary (ie, an expansion of the money supply - 'printing money').
At its core, in other words, tax cuts are about redistribution of wealth. I would argue that one of the major reasons the GOP has so viscerally attacked the concept of 'redistribution of wealth' is captured rather well by Shakespeare
Hamlet:
Madam, how like you this play?
Queen:
The lady doth protest too much, methinks.
The GOP is strongly in affirmation of redistribution of wealth, and one of the primary methods by which redistribution has occurred in the Reagan-Bush era has been through tax cuts, by gutting the progressive nature of the income tax code. The GOP's interest has been in transferring wealth from workers, people earning a living, to capital, people living off of investments. And they've been very successful at breaking the link between wages and productivity. The wealthy control a huge portion of the total financial assets in our country.
Now what exactly does that have to do with the Making Work Pay tax credit? Well, the principles upon which it is based are something fundamentally different from most tax policy of the past generation. That's very exciting. But the actual policy implementation of those principles is a rounding error. It's a tiny amount of money. $400 isn't going to allow somebody to keep their house or pay for a large medical bill. By comparison, if we look solely at the Bush tax cuts (nevermind the larger Reagan-Bush era), the scales are orders of magnitude different. Instead of talking about hundreds of dollars per household, we're talking tens of thousands of dollars.
Let that sink in for a moment.
Imagine what would happen if we did something that Bush did for millionaires - give an $85,000 tax cut - to every American.
Our country would be unrecognizable. And in that is both the strength and weakness of Making Work Pay. As a small program, it's not much more than a gimmick. Silly, really, with little value beyond the PR. But the underlying principles are a radical shift from the recent past. Couple those principles with bold action in implementing them, and we could create a much different future.
But we have to be willing to redistribute wealth to do that.
You can read these words all over again at The Seminal at FDL.
Update: *FYI, I hope it's clear from the tone, but this is a general overview of the tax credit. It is not legal, financial, or tax advice. Please read the IRS instructions if you haven't filed your taxes yet and are doing them yourself. There are several specific scenarios under which you will not be eligible for the maximum $400 credit, including some under which your are entirely ineligible.