Analyzing Tax ‘Credits’

After reading a recent AP analysis of CPAC that purported to point out factual errors in political rhetoric, I noticed one interesting problem that represents a common misconception about what some call tax “credits.” The specific example given in the analysis was the $400/$800 “Making Work Pay” tax “credit” given to individuals and joint filers as part of last year’s stimulus package.

Ron Fournier, the writer, referenced that “credit” as an attempt to debunk former Massachusetts Governor Mitt Romney’s claim at the convention that the Democrats were the party of no tax cuts. Fournier equates what he calls these “tax benefits” with what Romney was referring to when he mentioned “tax cuts.”

As I’ve written about before, the Making Work Pay tax “credit” is not really a tax cut. It gives $400 to individual filers or $800 to joint filers without accounting for the fact that many of them do not end up paying federal income taxes anyway. In fact, in many cases this “credit” actually amounts to free money (money they never had nor paid in taxes) to these filers. It can’t be a tax “cut” if there is no tax to cut.

Thanks to our “progressive” income-tax system, such so-called “credits” have become the norm. They equate to what President Obama called “spread the wealth around” during the 2008 campaign. With these types of handouts, is it any wonder why our federal debt is now more than $12 trillion?