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Pasco County News | Breaking News

Revealed: Obama’s tax-credit field of landmines

Posted Nov 17, 2009 by Tom Jackson

Updated Nov 17, 2009 at 12:55 AM

Because it’s never too early to begin your end-of-the-year income tax preparation strategy, we commend your attention to an Associated Press story about financial landmines laid into last winter’s so-called stimulus package, costly little bombs the Treasury Department says may blow up on more than 15 million taxpayers come next April 15.

It’s all because congressional Democratic Party leaders – with full complicity of the new and frantic Obama administration – chose to attempt economic revival through income tax code gimmickry and chicanery, attempting to pick winners rather than applying a straightforward reduction in marginal rates.

Who’s going to get whacked? According to the AP, achievers are the targets. Go-getters. Hustlers. And married folks.

You know. The usual suspects.

WASHINGTON - More than 15 million taxpayers may owe the government $250 or more because of how the IRS last spring set up President Barack Obama’s tax break that was designed to help consumers spend the U.S. economy out of recession.

Individuals with more than one job and married couples in which both spouses work may have to repay the government $400, either through a smaller tax refund or a larger tax bill, according to a report released Monday by the Treasury Department’s inspector general for tax administration. Social Security recipients who also earn taxable wages may have to repay $250.

The tax credit, which is supposed to pay individuals up to $400 and couples up to $800, was Obama’s signature tax break in the massive stimulus package enacted in February. …

Most workers started receiving the credit through small increases in their paychecks in April. The tax credit was made available through new tax withholding tables issued by the Internal Revenue Service.

The withholding tables, however, do not take into account several common categories of taxpayers. And that could force some people to repay what the government gave them.

For example, a worker with two jobs gets a $400 boost in pay at each job, for a total of $800. That worker, however, only is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time — either through a smaller refund or a payment to the IRS.

The IRS recognized there could be a similar problem for married couples if both spouses work, so it adjusted the withholding tables. The fix, however, was imperfect.

A married couple is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them each a $600 boost — for a total of $1,200.

There were 33 million married couples in 2008 in which both spouses worked. That’s 55 percent of all married couples, according to the Census Bureau. [To be clear, that means 55 percent of all married couples will have to pay back $400 when they file their taxes; it’s the marriage penalty with a vengeance.—ED]

Also, a single student with a part-time job gets a $400 boost in pay. However, if students are claimed as dependents on their parents’ tax returns, they don’t qualify for the credit and would have to repay it when they file their returns.

Retirees, already in the line of fire in all the so-called health “reform” packages favored by Capitol Hill Democrats, are in for more troubling news.

More than 50 million Social Security recipients received $250 payments in the spring as part of the economic stimulus package. Those lump sum payments were intended to provide a boost for people who didn’t qualify for the tax credit.

However, the payments were sent to many retirees who also received the tax credit. Those retirees will have the $250 payment deducted from their tax credit — but not until they file their tax returns next year, long after the money may have been spent.

“More than 10 percent of all taxpayers who file individual tax returns for 2009 could owe additional taxes,” said J. Russell George, the Treasury inspector general for tax administration.

Sen. Chuck Grassley of Iowa, the senior Republican on the Senate Finance Committee, called problems with the tax credit “another unfortunate example of what can happen when Congress and the White House rush through legislation like the stimulus without thinking through the consequences.”

Frankly, it’s worse than that. Using Grassley’s understated terminology, it’s another unfortunate example of what happens when lawmakers attempt to game the system to make good on foolish campaign promises. The Obama administration’s tax-credit scheme was – is – a chimera of the genuine tax-rate cut it sounded like the future president was talking about on the campaign trail last fall.

The history is clear: Cutting rates always fuels the engine of economic growth. Rate cuts not only put real money in the pockets of working families, because rate cuts—unlike tax credit games—tend to stick around, they encourage small businesses (most of which file as individuals) to invest in expansion. And each happens without the worry of properly adjusting their withholding if they happen to be too successful or too ambitious during the year.

That’s not the way the tax-credit scheme is working out. Designed to put a few piddling dollars in millions of pockets for a limited period, the evidence is about to become abundantly clear that the plan was never about encouraging yet another bootstrap economic recovery for which the United States is rightly famous, but instead was about doling out pittances for the masses, and slamming down hard on anyone who flourished in these difficult times.

What’s remarkable is how cheaply most of us could be bought.