Today Obama announced that part of his stimulus package is a “tax cut”. Of course that’s just great, spend more and “tax less”, which will just dig this country into an even deeper hole than just spending more. It’s fairly clear that this so-called tax cut is just a Keynesian stimulus disguised in such a way to get the support of Republicans, not an actual growth-promoting tax cut. Russell Roberts points out that it really isn’t a tax cut, because you’re raising taxes on the future.
We’re doomed. Time to buy more puts.
The payroll tax credit is a rebate of payroll taxes for low-income workers. As faithful readers of this blog surely know, an increase in spending coupled with lower tax collections is an INCREASE in taxes. AN INCREASE in taxes. NOT A TAX CUT. If I spend more money and collect less, the government is promising to collect more taxes in the future. It is not a tax cut. Not a tax cut. Not a tax cut. And when you don’t cut rates but rather give people a lump sum of $500, there are no incentive effects other than to increase the probability that the US Treasury will be unable to honor its obligations in the future.
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