Wednesday, October 20, 2010

My Stimulus Tax Cuts

Did you get a tax cut in 2009? No? Are you sure? According to this article, a lot of people don't realize they got a tax cut: From Obama, the Tax Cut Nobody Heard Of.

At Pig Pickin’ and Politickin’, a barbecue-fed rally organized here last week by a Republican women’s club, a half-dozen guests were asked by a reporter what had happened to their taxes since President Obama took office.

“Federal and state have both gone up,” said Bob Paratore, 59, from nearby Charlotte, echoing the comments of others.

After further prodding — including a reminder that a provision of the stimulus bill had cut taxes for 95 percent of working families by changing withholding rates — Mr. Paratore’s memory was jogged.

“You’re right, you’re right,” he said. “I’ll be honest with you: it was so subtle that personally, I didn’t notice it.”


That was kind of the point: economists hoped people would be more likely to spend small amounts of money they got each month, as opposed to a lump-sum payment that they might just sock away in the bank. Whether or not that strategy was right is debatable, but politically, an invisible tax cut doesn't help the current administration's reputation.

I did realize that something was going on with my taxes because I had to adjust the repeating paycheck deduction transactions I enter in Quicken, but I'd never stopped to think about how much it came to. I just checked: in January, February and March of 2009, I was having $935.56 in Federal taxes withheld from each paycheck. After the Obama tax cut kicked in, that dropped to $891.14 in April 2009 and beyond, a decrease of $44.42 per month, or 4.7%. It's hard to calculate the total effect for all of 2009 because I maxed out my 401k before the end of the year, and of course taxes withheld are not the same as actual taxes paid after you factor in refunds, but I'd guess it might have totaled a couple hundred dollars in the end. I don't have the energy to dig up my tax returns and do all the math right now, but the actual terms of the tax credit are basically this:

In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.

This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

More details here.

Compare that to back in 2008, when Bush issued his one-time stimulus checks: I got $19.70.

Neither of these windfalls was enough to make me change my behavior-- I'm fortunate enough to be able to save a good chunk of my income, and my spending decisions are made within an overall sense of what I want my budget to be, and other random factors of whatever I happen to want to spend money on at various times. But if I was living paycheck to paycheck and spending all the money I had, Obama's tax cut would have stimulated consumer spending more than Bush's.

Of course there are much larger debates going on about what's going to help our economy and whether tax cuts are a good idea, who should get them, etc. etc.-- I won't get into all that, but regardless of the bigger picture it's frustrating that so many people either aren't aware of facts or actively spread disinformation about Obama's actions on tax cuts.

8 comments:

Anonymous said...

Funny - I wondered why that was and now I know why. I think mine is a little interesting as I went down 5.1% however when I got my 2,8% raise in April, my taxes went back up 5.1%. So essentially I was paying what I did in 2008 and the beginning of 2009 after a 2.8% raise. Funny that between 2009 and 2010, my taxes went up 0.8% with no changes to income or deductions. However this last year that in April I got a 1.8% raise and my taxes went up 3.28%.

So essentially in 2 years, I went down 5.1% and back up 5.1%, raised 4.1% on two separate dates, and the only change to my income was 4.6% increases. I guess technically I am still ahead.

iwallet said...

itz really funny

Jenna said...

Thanks for sharing this information. Interesting how purchasing decisions haven't really changed over the past couple years, but taxes and prices have.

Side comment: I sent you an email about a week ago. Did you ever receive it? Please let me know.

Nick D. said...

we've got to learn how to cut back, because like jenna said purchasing decisions havent changed but prices have gone up. formula for trouble if you ask me.

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