We were warned before the election, about what Obummer was planning on doing. Wall Street Journal warned us:
WJS, Peter Ferrara writes:
Moreover, the tax credits would mostly go to those who pay little or nothing in federal income taxes. His trick is to make the tax credits "refundable." Thus, if the tax credit is for $1,000, but the taxpayer would otherwise only pay $200 in taxes, the government would write a check to the taxpayer for $800.
What? WHY should they get $800? Roughly 47% of people pay no taxes, or get more money back than they paid in. This is Greece waiting to happen.
From over at Keith Hennessy, we find out why:
First, here’s a quick refresher on the difference between a tax deduction and a tax credit:
* Suppose you make $60,000 per year. If you donate $5,000 to charity, you get a $5,000 deduction. You pay income taxes on only $55,000.
* Suppose a married couple finds they owe $12,000 in income taxes before accounting for the child credit. If they have three kids, they get a $1,000 tax credit for each child, for a total of $3,000 in tax credits. They subtract this $3,000 from their $12,000 of income taxes owed, leaving them owing $9,000 after accounting for the child tax credit.
* Suppose this same family owed only $2,500 in income taxes before accounting for their three children and the child tax credit. Since the child tax credit is refundable, the $3,000 credit wipes out all of their $2,500 of income tax liability and they get $500 from Uncle Sam.
The MAIN reason he says that about half the people pay no taxes, is because of the EIC (Earned Income Credit), and the child tax credit. This is CRAP.
Look at how the taxes have changed since 1993 till now:
* In 1997 every “normal” married couple with two children that earned $24,000 or more (in today’s dollars) had to pay at least some income taxes. The top nonpayer threshold for a family of this size was just under $24,000. This means there were some four-person families with income just below $24,000 that owed no income taxes.
* In 1997 a Republican majority Congress and President Clinton enacted the Balanced Budget Act. At the insistence of Congressional Republicans, this law created a $400-per-child tax credit which began in 1998. This caused the top nonpayer threshold to jump more than $7,000, to about $31,300. Millions of families with kids with incomes between $24,000 and $31,300 were “taken off the rolls” because the child tax credit wiped out the small income tax liability they owed.
* As a result of the 1997 law, in 1999 the child tax credit automatically increased to $500 per child, and the threshold for a married family with two kids grew to $32,800 in today’s dollars.
* In 2001 President Bush and the Republican Congress enacted a major tax law that increased the child tax credit to $600. This law also introduced the 10% income tax bracket, which lowered by 5 percentage points the lowest income tax rate. The combination of these two tax changes raised the top nonpayer threshold to $38,700. That law further phased in over time increases in the child credit to $1,000 per child.
* The 2003 tax law enacted by President Bush and the Republican Congress accelerated the $1,000 per child amount to be effective immediately. This increased the threshold to $47,400 in 2003. That’s a huge jump. It was incredibly popular, and it helped create political impetus for the 2003 law which also accelerated rate reductions and cut capital gains and dividend rates.
* The 2008 stimulus (President Bush + Democratic majority Congress) included stimulus checks of $1,200 per married couple, plus another $300 per child. This increased the threshold to $56,700. This was a one-time increase, however, and the non-stimulus threshold for 2008 was about $44,500.
* In 2009 President Obama and a Democratic majority Congress increased this threshold to $51,400 with the new “making-work-pay” tax credit. This was enacted on near party-line votes. That threshold drops slightly to about $50,300 this year.
Republicans can't complain about this, they were in the thick of it.
Find Keith Hennessy HERE. Some good reading there. He was in Washington, as an aide I believe to some congresscritter or another.
3 months ago