The Obama stimulus Tax cuts are so subtle, that no one has noticed. These tax cuts were distributed with the hope that some measure of relief would be provided to families, and that the additional money would also be used by recipients to help stimulate the economy. Based on evidence from a 2008 survey that people were more likely to save lump sum payments than to spend their rebates, the administration doled out the money incrementally and in the form of tax cuts.
In contrast to the lump sums provided under Bush, Obama arranged for less tax money to be withheld from people’s paychecks, effectively giving them a small “rebate” in every paycheck, rather than in a lump sum. Unfortunately, many didn’t notice the giveback. As Thom Tillis, a Republican state representative said, “This was the tax cut that fell in the woods — nobody heard it.” Yet, taxes had been cut.
The cuts gave typical families an extra $65 per month. Over the past two years the tax cuts decreased income taxes by up to $400 a year for individuals and $800 for married couples. But, recipients of the slightly bigger paychecks may not have noticed this increase in their paychecks. This is because despite their taxes being lower, living expenses may have risen during the same period. Additionally, very few people have fine tuned budgets or pay attention to their paychecks. Otherwise they may have noticed the Obama rebate.
Sadly, many people having a higher cost of living are of the impression that their taxes had been raised, rather than 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.” In fact, a provision of the stimulus bill had cut taxes for 95 percent of working families by changing withholding rates. While economists are still measuring how stimulative the tax cut was, that perception could hurt the administration. A friendly reminder that a third of the $787 billion was in the form of tax cuts.
In a New York Times/CBS News Poll last month, fewer than one in 10 respondents knew that the Obama administration had lowered taxes for most Americans. Half of those polled said they thought that their taxes had stayed the same, a third thought that their taxes had gone up, and about a tenth said they did not know. The public may not have noticed the tax cut blip on their economic radar because for many, paychecks may have gone down and health care costs had risen. Some people were making less money to begin with, as businesses cut back.
The Deputy Director of the National Economic Counsel, Jason Furman, said the Obama administration still believes that changing withholdings was a more effective form of stimulus than sending rebate checks would have been. Joel B. Slemrod, a professor of economics at the University of Michigan said it was not unheard of for voters to miss tax cuts. Recipients of a 1986 overhaul of the tax system made significant cuts to most people’s taxes when surveyed “Most people didn’t answer that they went down,” he said. After the Obama tax cut took effect, he said, only 13 percent said they would use the money primarily to increase their spending. The Obama administration believes that people did spend the money, and cites analyses calling the cut one of the more effective forms of stimulus. The administration would like to continue the cuts which will expire next year, unless extended.
Apparently, there is more than one way to cut taxes and stimulate the economy.
Candi Sparks is the author of the “Can I Have Some Money?” books series.