Tuesday, October 19, 2010

Remember the tax cut!

The New York Times wonders why no one remembers the big Obama tax cut? You remember, the "Make Work Pay" tax cut?  $400 a year for two years?  Instead of sending everyone a check, as happened in the Bush administration, the withholding tables were adjusted. The theory was that this approach would cause the tax cut to be instantly spent, whereas a "big" check would be saved or used to pay down debt.  Not only do people not give Obama credit for cutting their taxes, according to the Times most people think he has increased taxes!

Whatever.  At the time, I predicted that the tax cut would not be perceived as such. Here's what I wrote:

"Anyway, this is how the credit will look to me. Sometime in about June (why June? no one has said, but most likely IRS is busy until then) my tax withholding will go down by about $13. Yay! Then next January my tax withholding will go up by about $6. That's because next year the same $400 credit will be spread over 12 months instead 7. Crap, that will still feel like a tax increase to me. I will have grown accustomed to that $13 extra. Then in 2011 my withholding will go up again by another $7 as the credit expires—another tax increase."

Although I'd like to tell the Times I told you so, it's not satisfying.

1 comment:

JLM said...

Perhaps the withholding bounce-back explains why a third of those surveyed thought taxes have gone up since 2008. Those in this group who favor "tax cuts" must mean *new* tax cuts, not merely the extension of this year's rates.