The Obama Tax Cut Noboby Heard Of...

[Objective Voice]

I knew about it in part because it was the first thing I verified when I did my 2009 Federal Tax Return and because it was listed among one of the many campaign promises kept by President Obama (See PoliticFact.com "Obama Promises" for details), but I was surprised to learn why few people even realized that their taxes were actually cut under the Obama Administration.

This article explains why this was "the tax nobody heard".

Actually, the tax cut was, by design, hard to notice. Faced with evidence that people were more likely to save than spend the tax rebate checks they received during the Bush administration, the Obama administration decided to take a different tack: it arranged for less tax money to be withheld from people’s paychecks.

They reasoned that people would be more likely to spend a small, recurring extra bit of money that they might not even notice, and that the quicker the money was spent, the faster it would cycle through the economy.

Economists are still measuring how stimulative the tax cut was. But the hard-to-notice part has succeeded wildly. In a recent interview, President Obama said that structuring the tax cuts so that a little more money showed up regularly in people’s paychecks “was the right thing to do economically, but politically it meant that nobody knew that they were getting a tax cut.”

“And in fact what ended up happening was six months into it, or nine months into it,” the president said, “people had thought we had raised their taxes instead of cutting their taxes.”

So, why was it that few people realized their taxes had been cut?

There are plenty of explanations as to why many taxpayers did not feel richer when the cuts kicked in, giving typical families an extra $65 a month. Some people were making less money to begin with, as businesses cut back. Others saw their take-home pay shrink as the amounts deducted for health insurance rose.

And taxpayers in more than 30 states saw their state taxes rise, according to the Center on Budget and Policy Priorities.

And there you have it.

 

[phattonez]

-sigh-. What's the difference if you get a tax break but it's just funded with debt? They just sapped away capital to give people more disposable income. So congratulations, you have more money, but now there's less production. It's a worthless action.

 

[Objective Voice]

I agree with you, phatt. But the issue here isn't whether or not tax cuts work or are paid for. Those issues have been discussed in other threads.

The point here is so many pundits have labelled President Obama as a tax-and-spend kinda guy, yet there were tax cuts for individuals and businesses in the Stimulus Bill. Problem was the economy was in such a downturn at the time that other factors basically ate up whatever positive gain the tax cuts would have made. Like the article reads, the tax cuts were offset by other increases in consumer goods/state taxes. It was a "wash".

 

[phattonez]

I agree with you, phatt. But the issue here isn't whether or not tax cuts work or are paid for. Those issues have been discussed in other threads.

The point here is so many pundits have labelled President Obama as a tax-and-spend kinda guy, yet there were tax cuts for individuals and businesses in the Stimulus Bill. Problem was the economy was in such a downturn at the time that other factors basically ate up whatever positive gain the tax cuts would have made. Like the article reads, the tax cuts were offset by other increases in consumer goods/state taxes. It was a "wash".

But there are tax increases in the healthcare bill, so it's kind of hard to say (at least from this elementary analysis).

 

[liblady]

But there are tax increases in the healthcare bill, so it's kind of hard to say (at least from this elementary analysis).

but when do they take effect?

 

[Whovian]

But there are tax increases in the healthcare bill, so it's kind of hard to say (at least from this elementary analysis).

but when do they take effect?

Worry about it later, huh?

 

[liblady]

Worry about it later, huh?

is that what i posted?

 

[ptif219]

It is not a tax cut. They take less out of your check. This means your refund will be smaller or you will pay in at the end of the year. It does not change the tax rate you pay

 

[MaggieD]

I knew about it in part because it was the first thing I verified when I did my 2009 Federal Tax Return and because it was listed among one of the many campaign promises kept by President Obama (See PoliticFact.com "Obama Promises" for details), but I was surprised to learn why few people even realized that their taxes were actually cut under the Obama Administration.

This article explains why this was "the tax nobody heard".



So, why was it that few people realized their taxes had been cut?



And there you have it.

I realized it. I heard about it on the news. It was explained why and I thought it was a hoot that the government didn't want the people to save the money. What a joke our economy has become.

 

[imagep]

-sigh-. What's the difference if you get a tax break but it's just funded with debt?

Thats why I disagree with extending tax cuts for the rich at this time. If a lack of capital to expanded business was a problem, then I would want to extend the tax cut for the rich also - but at this particular time, businesses won't expand until there is a demonstrated increase in demand, and even if that occured today, there is plenty of capital available at this point - businesses are hording money like crazy and many banks have plenty cash to lend if they can find a worthy borrower.

They just sapped away capital to give people more disposable income. So congratulations, you have more money, but now there's less production. It's a worthless action.

If capital was an issue, I would agree with that, but it ain't so I won't. I really don't know how a tax break for the middle class could have possibly "sapped away capital", I think that is ludicris. Sure, the gov may have had to borrow more money to deal with the tax cuts, but the interest rate that people are getting from lending our gov money is virtually nothing. If there were better profit opportunities in the private sector people would have invested their capital in the private sector. Money alway chases the most lucritive opportunity. I thought you were supposed to be a libertarian and understand how the capitalistic economy works.

Production didn't drop because people have more money, production dropped due to a lack of demand for products. Why in the world would the middle class having more money to spend encourage a company to produce less? That's totally idiotic. It could very well be that the tax cut for the middle class is the one thing that has kept demand for my products high enough so that I don't go out of business and lay off people. A little extra cash in the pockets of the consumer class is very likely one of the factors that kept the recession from becoming a depression and kept the economy from double dipping.

 

[Objective Voice]

It is not a tax cut. They take less out of your check. This means your refund will be smaller or you will pay in at the end of the year. It does not change the tax rate you pay.

So, what would you call what happened? A tax deferment? Either way, people still got to "keep more of what they earned". And as such, isn't that by definition what Republicans/Conservatives have been calling a "tax cut"?

 

[Missed AB]

So, what would you call what happened? A tax deferment? Either way, people still got to "keep more of what they earned". And as such, isn't that by definition what Republicans/Conservatives have been calling a "tax cut"?

Change your W2 to read married with 46 dependents. You will "keep" even more of your money then.

All that changed was you got less of a "refund" or paid more at the end of the tax season. There was no reduction in your tax rate. The only thing that changed was the amount withheld on payday to more accurately reflect your true "take home" wages.

 

[GhostlyJoe]

Change your W2 to read married with 46 dependents. You will "keep" even more of your money then.

All that changed was you got less of a "refund" or paid more at the end of the tax season. There was no reduction in your tax rate. The only thing that changed was the amount withheld on payday to more accurately reflect your true "take home" wages.

I don't post very often, but I just want to chime in to say that you're factually wrong on this. The Making Work Pay tax credit did reduce your tax burden. Less money was taken out of your paycheck, but it was "credited" on your tax return as if you had paid it.

Read about it here: The Making Work Pay Tax Credit

 

[Missed AB]

The Making Work Pay tax credit did reduce your tax burden. Less money was taken out of your paycheck, but it was "credited" on your tax return as if you had paid it.

Read about it here: The Making Work Pay Tax Credit

Thank you for chiming in, but no, I did not get a tax cut. The only difference I observed was my tax scale was adjusted and I got a smaller refund than typical. I originaly thought it was not a real tax reduction because of the reason mentioned above. But after reading the link you supplied I now as a fact I still did not get a deduction, and only observed a reduction in my withholdings.

This tax credit will be... phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

 

[GhostlyJoe]

Thank you for chiming in, but no, I did not get a tax cut. The only difference I observed was my tax scale was adjusted and I got a smaller refund than typical. I originaly thought it was not a real tax reduction because of the reason mentioned above. But after reading the link you supplied I now as a fact I still did not get a deduction, and only observed a reduction in my withholdings.

This tax credit will be... phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

That's correct. It was tied to income level. Congratulations, then, on not qualifying for it

 

[FederalRepublic]

So, why was it that few people realized their taxes had been cut?

I suspect it might have something to do with the fact that nobody got a tax cut from Obama. Some people got a one-time tax credit (a "stimulus check" if you will...), which is a different thing than a tax cut.

 

[Missed AB]

I suspect it might have something to do with the fact that nobody got a tax cut from Obama. Some people got a one-time tax credit (a "stimulus check" if you will...), which is a different thing than a tax cut.

Or as GJ pointed out to me, I am "too rich" to have gotten a tax cut.

 

[phattonez]

Thats why I disagree with extending tax cuts for the rich at this time. If a lack of capital to expanded business was a problem, then I would want to extend the tax cut for the rich also - but at this particular time, businesses won't expand until there is a demonstrated increase in demand, and even if that occured today, there is plenty of capital available at this point - businesses are hording money like crazy and many banks have plenty cash to lend if they can find a worthy borrower.

You could produce more if the cost of producing was lowered. In other words, lower the tax rates, and people will produce more. If you want to produce more, you need to hire.

But you make a good point. If you just finance the tax through loans, then any benefit that comes from a tax cut would be neutralized in the now higher cost of credit (aka interest rate).

If capital was an issue, I would agree with that, but it ain't so I won't. I really don't know how a tax break for the middle class could have possibly "sapped away capital", I think that is ludicris. Sure, the gov may have had to borrow more money to deal with the tax cuts, but the interest rate that people are getting from lending our gov money is virtually nothing.

There's a difference between the nominal interest rate and the real interest rate. Take a look at this graph.

Sure, savings has increased, but it's only at about 5%. Don't forget that government debt has exploded at this time too, so I'd say it's a fair assumption that a lack of capital is a real problem right now. Capital markets and construction are all doing miserably. To say that capital is not a problem is to only look at interest rates and not look at what's really going on.

If there were better profit opportunities in the private sector people would have invested their capital in the private sector. Money alway chases the most lucritive opportunity.

Lowering the cost of capital would provide more profit opportunities.

I thought you were supposed to be a libertarian and understand how the capitalistic economy works.

There's no need for these personal attacks.

Production didn't drop because people have more money, production dropped due to a lack of demand for products. Why in the world would the middle class having more money to spend encourage a company to produce less? That's totally idiotic. It could very well be that the tax cut for the middle class is the one thing that has kept demand for my products high enough so that I don't go out of business and lay off people. A little extra cash in the pockets of the consumer class is very likely one of the factors that kept the recession from becoming a depression and kept the economy from double dipping.

Because if the only way to get the middle class more money is through deficits, then you've increased the cost of capital. So even though people may be able to spend more, your cost of production has gone up.

I mean, you're not suggesting that businesses grow solely on their profits, right?

 

[phattonez]

So, what would you call what happened? A tax deferment? Either way, people still got to "keep more of what they earned". And as such, isn't that by definition what Republicans/Conservatives have been calling a "tax cut"?

You don't get to keep more of what you earn. You get the same amount.

 

[imagep]

You could produce more if the cost of producing was lowered. In other words, lower the tax rates, and people will produce more. If you want to produce more, you need to hire.

Sure, I agree that you could produce more if production cost were lower. And I agree that it could happen due to lower tax rates, but for a different reason. If the tax rate is lower, consumers will purchase more, if consumers purchase more producers will produce more, and yes, they will hire more people. We actually agree on the effect, but just for different reasons.

Lowering the cost of capital would provide more profit opportunities.

I agree with that also. But if capital was our real issue, our economy should be booming because the cost of capital is currently at a record low.

There's no need for these personal attacks.

Again, we agree. I shouldn't have done that. I actually tried to edit the post to delete that but the time limit on edits had expired. I owe you an appology.

Because if the only way to get the middle class more money is through deficits, then you've increased the cost of capital. So even though people may be able to spend more, your cost of production has gone up.

I mean, you're not suggesting that businesses grow solely on their profits, right?

I don't think that the only way to get the middle class is through defits. Tax increases on the wealthy can do it offseting tax reductions on the middle class. At this particular time, I am suggesting that businesses can for the most part expand using capital (cash and equipment and facilities) that they already have. At some point, after their current resources have been fully utilized, they may indeed need to borrow additional money or to aquire additional investment.

 

[Missed AB]

s
Again, we agree. I shouldn't have done that. I actually tried to edit the post to delete that but the time limit on edits had expired. I owe you an appology.

Why do you need to apologize? I don't understand why some people act like they've never been offended before or never offended anyone. We need to stop taking ourselves so seriously and thinking that we are really that important. Because we are really not that important.

It's a discussion topic. You can focus on the parts that offend you, or you can focus on the parts that are important. This is like road rage on the internet.

It was scarcastic, but a point well made. Had this been a discussion in person I doubt feelings would have been hurt.

just my opinion.

 

[ptif219]

So, what would you call what happened? A tax deferment? Either way, people still got to "keep more of what they earned". And as such, isn't that by definition what Republicans/Conservatives have been calling a "tax cut"?

No they just get less or pay more in April. There is no reduction in the taxes you pay

 

[TurtleDude]

the government taking more money is what we have to avoid. people are less likely to waste money or expand government than the government is. starving the beast is what we have to do

 

[phattonez]

Sure, I agree that you could produce more if production cost were lower. And I agree that it could happen due to lower tax rates, but for a different reason. If the tax rate is lower, consumers will purchase more, if consumers purchase more producers will produce more, and yes, they will hire more people. We actually agree on the effect, but just for different reasons.

But it's important to note the difference because by your analysis then just raising aggregate demand would be the solution to everything.

However, I don't see that as the good that comes from a tax break. Just giving people money would do the same, yet it would just lead to more scarcity. Lowering the cost of production leads to a lower cost per unit good which means more people have access to the good. At some point, you have to ask yourself what the goal of an economy is. Is it to get people to produce, to raise standard of living, to get full employment? Encouraging consumption for the sake of production just seems counter-intuitive to a good goal for an economy, it seems to me.

I agree with that also. But if capital was our real issue, our economy should be booming because the cost of capital is currently at a record low.

But that's just the cost that is produced as a combination of the Federal Funds Rate, the discount rate, etc. Those rates are so low because they are fueled by inflation. This means that there is a lot of risk in lending if you are expecting inflation to hit.

Again, we agree. I shouldn't have done that. I actually tried to edit the post to delete that but the time limit on edits had expired. I owe you an appology.

Thanks. There are still some decent posters on this board.

I don't think that the only way to get the middle class is through defits. Tax increases on the wealthy can do it offseting tax reductions on the middle class. At this particular time, I am suggesting that businesses can for the most part expand using capital (cash and equipment and facilities) that they already have. At some point, after their current resources have been fully utilized, they may indeed need to borrow additional money or to aquire additional investment.

Why would we want to expand production at facilities that aren't fully utilized? Why not allow the companies that are at maximum utilization to expand by trying not to subsidize the failing companies? This is effectively what raising aggregate demand does. It relatively hurts the expanding company as compared to the situation where aggregate demand remained untouched. Let succeeding companies grow and stop trying to subsidize the failing ones.

 

[RightinNYC]

Except for timing, this was indistinguishable from Bush's "stimulus check" program. Did people consider that a "tax cut," or just a one-off check?