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Friday, May 1, 2009

Tax Cut Smoke and Mirrors

The AP reports:
Millions of Americans enjoying their small windfall from President Barack Obama's "Making Work Pay" tax credit are in for an unpleasant surprise next spring.

The government is going to want some of that money back.

The tax credit is supposed to provide up to $400 to individuals and $800 to married couples as part of the massive economic recovery package enacted in February. Most workers started receiving the credit through small increases in their paychecks in the past month.

But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time.
So while Democrats in Congress argue the President has cut taxes for 95% of working Americans, the truth is he has instead rovided them with a low interest loan that, unbeknown to them, they will be required to pay back at tax time. Some transparency.

The AP warns further that this issue may really come back to bit social security recipients:
The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran's disability benefits.

The payments are meant to provide a boost for people who don't qualify for the tax credit. However, they will go to retirees even if they have earned income and receive the credit. Those retirees will have the $250 payment deducted from their tax credit -- but not until they file their tax returns next year, long after the money may have been spent.
We mocked this effort to stimulate social security recipients a few weeks back. It makes the whole situational all the more frustrating to know that the government now plans to unexpectedly hit these older Americans, who the Administration believe “need it most,” with an increased tax bill around this time next year.

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