You knew it was coming. It was only a matter of time before one of the biggest interest groups in the country weighed in on the fiscal stimulus agreement reached between the White House and the House leadership. The AARP is pressuring senators to expand the fiscal stimulus so that more money can go to senior citizens who don't pay income taxes. The stimulus already includes money for those who work yet pay no income taxes. Now we are being told that it needs to be expanded to those who don't work and pay no income taxes yet earn some sort of retirement income.
Should these seniors be included? Who knows? Maybe. When dealing with a policy that is designed primarily to stimulate the economy, any arbitrary policy can almost be justified to some degree. But what this shows is that there is a problem in trying to use the tax code as the main vehicle for fiscal stimulus and/or social policy. Everyone is always going to complain that they are being shortchanged, despite the fact that getting money to everyone is difficult.
On second thought...maybe we should just send helicopters over every major city in the country and drop out $20 bills. And we can even make AARP happy by putting double the money in the helicopters that fly over golf courses in Florida and Arizona.
Child Tax Credit #3
Regardless of whether one supports a stimulus package, the agreed-upon package by the House leadership and the White House could almost rival AMT in terms of the amount of complexity it adds to the 2008 tax system. Not only do we have the government sending out checks to those who have no income tax liability (thereby requiring some method to reduce their tax liability), the proposal calls for yet another child tax credit. Yes. Make it three child tax credits.
We have the regular child tax credit, which gives everyone $1,000 per child with a floor at zero income tax liability (which is phased-out at $110,000). Then we have the additional child tax credit for those who are hit by that floor, thereby making the child tax credit refundable. But now we have a new child tax credit for $300 per child available to all, which is subject to different phase-out ranges than the current child tax credit. Furthermore, this is in addition to the personal exemption that a tax return gets for each child (which for someone in the 15 percent bracket is worth $525 for 2008) and other credits that are linked to children such as education credits, the credit for child and dependent care expenses, and the Earned Income Tax Credit.
And if last night's Republican debate is any guide to the future of child tax credit policy, it may someday be the case that if you have a child, you just won't have to file a tax return at all. In all seriousness, though, what is the difference between these child tax credits and the government establishing a program called "Paying You to Have Kids" whereby HHS would write out checks to every family, paying each one $2,000 per child? Conservatives would tend to hate that as it would be big government, but they will defend to the death every child tax credit because they can call it a "tax cut." In reality, there is no difference. Whether you do it through the tax code or through a spending program, it must be offset by one of the following: a tax hike on others today, a tax hike on others tomorrow, a cut in spending today, or a cut in spending tomorrow.
Finally, it's worth noting that because of the complexity surrounding this rebate, this tax year (2008) may be the year in which the number of lines on the standard 1040 actually hits 80. The number was 77 in tax year 2007 (for which we are currently filing taxes).
Tax Humor
"Why does a slight tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents?"
—Peg Bracken
"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."
— Jean Baptiste Colbert, Minister of Finance under King Louis XIV of France
"A fine is a tax for doing something wrong. A tax is a fine for doing something right."
—Author unknown
"Nuclear physics is much easier than tax law. It's rational and always works the same way."
—Jerold Rochwald
"Contrary to what some people claim, the tax laws have a lot of respect for logic. They use it so sparingly."
—Jeffrey L. Yablon
Tax Foundation Comments on Proposed Stimulus Deal
Based on the reported agreement between House Speaker Pelosi and House Minority Leader Boehner, it is apparent that fiscal stimulus may not be provided as the much touted tax rebates, but instead as simple cash payments to most working Americans. The cash payments would be set at $600 for individuals, $1200 for married couples who pay income taxes. Workers with at least $3,000 in earnings, but who pay no income taxes, would receive $300. There would be an additional payment of $300 per child added to the base. Estimates suggest the cash payments would total $100 billion.
Tax Foundation Vice President for Economic Policy Robert Carroll responded:
"While direct cash payments may help boost consumer spending and shore up the economy in the near term, this relief would do virtually nothing to improve the prospects of working Americans or the economy as a whole over the long haul. Short-term fixes only serve as short-term solutions. In addition to addressing the current economic weakness, the Congress also needs to take notice of how far the U.S. business tax system has fallen behind in today's global economy. The U.S. now has the second highest corporate tax rate among major economies. Taking action on this pressing issue would improve America's competitiveness, strengthen our economy, and protect American jobs facing pressure from foreign competition."
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