Thursday, February 18, 2010

Encouraging profligacy 

My son texts me -- they never call any more -- asking about a $400 tax credit. I think he means the Making Work Pay credit. He wants to know how to file to get it. From a random site pulled up on Google that I thought he'd find useful:
The $400/$800 Making Work Pay tax credit took effect in July 2009. Workers who have taxes withheld from their paychecks will see a decrease in the federal income taxes withheld from each paycheck by about $30 per paycheck every two weeks or $60 for couples.

...The credit will phase out by two percent of any income over $150,000 for couples and $75,000 for others. Couples earning more than $190,000 and individuals earning more than $95,000 will not benefit from the credit.

Unlike the 2008 economic stimulus tax rebate checks that were mailed to taxpayers in a lump sum, the government is hoping that offering the $400 Make Work Pay tax credit as a reduction in payroll deductions will encourage taxpayers to spend the credit rather than save the money or use it to pay down debt.

We are encouraging younger people to spend rather than save. And perhaps how this works is by giving the money back in $30 dribs and drabs that they don't notice. Wasn't this how we got into trouble in the first place? Why does government think it should encourage consuming new goods rather than paying off debt?

Karl noted a few weeks ago that the government is ending this credit as well, since it was expected to spend $116.2 billion over ten years, quite an expensive program. Perhaps one reason for cutting it was that voters like my son didn't even know they were getting it. When I told my son how he had gotten this credit already, all I got was the cryptic 'K'.

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