Tax filers may notice an additional benefit this year: the “Making Work Pay Tax Credit.” This was part of the government’s economic stimulus/recovery efforts. It means $400 for individuals or $800 for joint filers.
What’s interesting about this “credit” is that those paying little to no income taxes (those getting all or most of their withheld income back after filing) will, with this, get more money back than they paid in. As it stands, a large percent don’t end up paying any income taxes anyway thanks to our “progressive” income-tax system. Take for example the following estimate:
The Tax Policy Center estimates that for 2009, 43% of tax units (most of which are lower income households that may or may not file a return) will have no income tax liability or will have a negative income tax liability, meaning the government will actually pay them.
Getting more back from the government than you paid in goes beyond a mere “credit”; it becomes essentially welfare — or an example of what Barack Obama called “spread the wealth around” on the campaign trail. Really, it represents a way for politicians to gain greater support for their reelection. If they can make sure that nearly half of filers don’t pay any taxes or actually get more money back, they can often rely on those filers’ votes.
There may be those who feel guilty for receiving the “credit” and are contemplating paying it back. They, however, should ask themselves if the government is likely to spend that money wisely to pay down the federal debt. With the ideas of those currently in power in relation to fiscal policy, it is highly doubtful. Politicians will probably just find another dubious way to redistribute it. In the end, individuals may be better off using the money to reduce their own personal debt.
* Note: I wrote a column on a similar situation in which I paid no income taxes a few years ago.