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Tuesday, February 17, 2009

The Too Cute Tax "Cuts"

The Obama administration thought it had learned a lesson from the tax rebates that the Bush administration had implemented last summer. One time tax rebates are not nearly as effective as perpetual tax cuts. As such, as part of the stimulus package, the Obama administration didn't want to just send out a check. Instead, the Obama administration wanted less money taken out of weekly pay checks. So, the Obama administration has created "tax cuts" that will begin to be felt starting in June. There is just a little problem with their new plan.

The stimulus plan would give a $400 tax cut to individuals and an $800 cut to couples. That boils down to an extra $13 a week for most workers starting in June. It would fall to about $8 extra per week next January.

Some worry the cut is not enough to encourage consumers to go out and spend. And since two-thirds of the economy is consumer spending, the effectiveness of the tax cut in spurring workers to open their wallets is key to an economic revival.


To borrow a now famous phrase, you can put lipstick on a tax rebate but it's still a rebate. In this case, the Obama administration thinks that giving folks $13 extra weekly in perpetuity, or for five months, is better than giving them $400 one time. Instead, what they have done is exposed just how small this so called tax cut is.

You can cut up $400 all you want. You can pay it out over five months, or even five years, but $400 will still be $400. All President Obama has done with this stunt is exposed just how miniscule these so called tax cuts are. In a bill that is worth nearly $800 billion, the average tax payer will get a miniscule extra $13 weekly, and that will only last until the end of the year. Then, it will drop to $8 weekly until the $400 is paid out. At some point, the average tax payer will put two and two together in their heads. They will soon realize that $13 weekly out of $787 billion is not very much. Soon, people will start to ask where the rest of the money went.

States will get bailed out. The automakers will get bailed out. The banks will get bailed out. The Department of Education will get $60 billion plus. The Department of Energy will get $35 billion plus. The tax payer only has room to get $13 weekly and soon everyone will realize just how cute this too cute tax cut is.

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