Saturday, October 27, 2012

The Return Of Making Work Pay

The White House is kicking around the return of the working-class tax cut for Americans used as part of the stimulus:  Making Work Pay, a $400 tax cut ($800 for couples) off the top.

The White House is weighing the idea of a tax cut that it believes would lift Americans’ take-home pay and boost a still-struggling economy, according to people familiar with the administration’s thinking, as the presidential candidates continue battling over whose tax policies would do more for the country.

Obama administration officials have concluded that the economy, while improved, is still fragile enough that it may need another bout of stimulus. The tax cut could replace the payroll tax cut championed by President Obama in 2011 and 2012, which was designed as a buffer against economic shocks such as the financial crisis in Europe and high oil prices. It expires at year’s end.

As David Dayen points out, the flat $400 tax cut would be far more progressive than the current 2% payroll tax cut, andfor more effective for lower-income Americans.

Making Work Pay, the name of the stimulus-era tax cut, was actually a better deal for the working poor. The flat $400 tax credit provided a bigger boost at the low end to anyone making under $20,000 a year than the payroll tax cut, which gave back 2% of income to everyone on the portion of their income affected by the payroll tax, around $110,000. This made it a more stimulative tax cut, since it provided more money to those with a higher marginal propensity to spend. Employers accomplished the tax cut by taking less out of withholding, making it kind of a hidden tax cut that workers didn’t know about. But it did raise their take-home pay.

Gonna have to agree with D-Day here.  This is a solid idea, it was a solid idea when it was used before, and makes a concrete pledge to cut taxes for working-class Americans with real numbers and a real world benefit that people will see and use.

Which means House Republicans will kill it, of course.

Well, after the election.

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