Guest opinion submitted by Idaho Senator Mike Crapo
There is an old adage: If it seems too good to be true, it probably is. This may be the case with a number of taxpayers who are now reaping a small benefit from the American Recovery and Reinvestment Act of 2009, President Obama's economic stimulus package. The law included the Making Work Pay tax credit, which allows $400 for individuals and $800 for couples. The credit is also refundable, which means that if your tax liability is less than the amount of the credit, you receive a check from the government for the difference. To many taxpayers, this credit might seem like a good deal, but there is a catch. Because of the way the credit is set up, many taxpayers may end up having to pay money back to the government at tax time.
The small additional amount that the credit adds to your paycheck each week might add up to your $400 or $800 limit before the end of the year, but the IRS withholding tables run to the end of the year and anything accrued over your $400 or $800 limit will have to be paid back at tax time. According to the IRS, you might be affected by this if you are an employee with two concurrent jobs, if you and your spouse work, or if you can be claimed as a dependent on someone else's tax return. For those who fall into these groups, the IRS recommends that you check your withholding, which can be done using the withholding calculator on its website, www.irs.gov.
There is, however, a better, more efficient way for the government to put more money in your paycheck: the government shouldn't take so much money from your paycheck in the first place. Instead of taking money in the form of taxes and then giving money back in the form of tax credits, why not skip the circuitous, inefficient transfer of money back and forth and simply leave more money in taxpayers' pockets.
Refundable tax credits can be claimed by individuals who pay no taxes and are often used as a politically easier way to make transfer payments. The government should use the tax code to lower taxes on taxpayers, not to spend taxpayer money. Spending should be done through the traditional spending process where it can be debated openly. Including outlays (or spending) in the tax code via refundable tax credits is misleading; it would be more honest, and less popular, if we called it what it is---spending.
In addition to the Making Work Pay credit and creating or increasing several other refundable tax credits, the American Recovery and Reinvestment Act of 2009 spends more than any other program in U.S. History except for NASA's space program. The tax credits will not help to stimulate the economy the way that cutting tax rates would, and too much of the spending in this stimulus package is completely unrelated to stimulating our economy as a whole. And now, the President has proposed a budget for 2010 that will further increase federal spending to unprecedented levels and increase the public debt by almost $5 trillion over the next five years.
What the economy needs, what America needs, and what Idaho needs is a government that controls its spending the way its citizens do during difficult times and a tax system that lowers tax rates to encourage working, saving, investing, and growth. Massive new government spending is not the solution to our problems; massive new government spending is making our problems worse. The solution will consist of a rational mix of tax relief, regulatory reform, and responsible spending. For more on my policies on the economy and taxes, visit my website at http://crapo.senate.gov.
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