President Obama and his surrogates are attempting to blunt his refusal to extend certain tax cuts (or, if you like, his desire to raise taxes) by saying that 95% of Americans have already received a tax cut under his plan. His surrogates then generally go on a clever aside about how clearly the tea partiers are out of their minds because while they are shouting about how Obama has raised taxes, when the opposite is true. Thus, they conclude, the President’s policies are well-liked, but just poorly communicated. Everything will be fine once the President gets his message across (kind of an odd conclusion given that Obama is suppose to be the best communicator since Guttenberg).
The difference here is what constitutes a “tax cut.” By the most broad of definitions (the one Obama uses), I’m sure 95% of Americans have received a “tax cut.” That is–did the overall amount you paid to the government decrease because of some tax provision was changed.
Democrats have been using this tactic for years–they promise a very small, usually “targeted” tax credit that can only be used if the taxpayer meets 5 or 6 requirements. Democrats use these types of tax credits as a defense to Republican’s charge that Democrats are opposed to broad-based tax cuts (which are popular, but would require the government to decrease spending to deliver them). The individual tax credits often end up to be very small and often, make the tax code more complex (for example, have you paid for post-k12 education lately? There are at least 5 tax credits, deductions and tax-preferred savings provisions in the tax code to do that).
Obama’s stimulus plan stretched this strategy to the limit with give-aways that were cloaked as ”tax cuts” but were just wasteful spending that was added to a tax return. The best example is the homebuyer’s credit (of which I am familar, because I’m getting ready to claim it next year). My taxes will decrease because of the stimulus plan, by an $8,000 credit, because I think I qualify for the payment and I purchased a house at the right time.
But I don’t consider it a tax cut. The homebuyer’s credit was an incentive payment made to me to buy a house–I bought a house, and now I get $8,000. I consider it a rebate that is tied to me making a purchase. It may be delivered via my tax return, but just because the IRS administers a program does not make it a “tax cut” or a “tax decrease.” The government was handing out free money for doing X, and I did X. It has nothing to do with actual income taxes, except it will be paid as part of my Form 1040 process. It has nothing to do with my income or my ability to pay.
I think most people, when they really think about it, would consider a tax cut to be a permanent (or semi-permanent) decrease in the rate of tax that they pay. They may consider changing the base of the tax (allowing more sales tax exemptions or more income tax deductions) a tax cut. But they do not consider special tax credits for they have to do a certain special activity (buy new windows or a house) as a tax cut. That’s a subsidy. It is spending disguised as tax policy.
There is a fundamental disconnect between the Obama Administration and Tea Party. The Obama Administration is trumpeting the homebuyer’s tax credit as a tax cut and asking why the Tea Party is fighting it if supposedly the tea party is for lowering tax. The Tea Party is rejecting the stimulus bill and these types of costly subsidies and pointing to them as a big factor as to why the federal deficit is so high. If the Tea Party was not right about Obama raising taxes six months ago, it is now clear that Obama always wanted to raise taxes, and now he is attempting to do.
President Obama shouldn’t try to take credit for tax cuts that are really stimulus subsidies. They already know about those, and the voters punished him in the elections for them.