Green Room

Encouraging profligacy

posted at 6:55 pm on February 18, 2010 by

My son texts me — they never call any more — asking about a $400 tax credit. I think he means the Making Work Pay credit. He wants to know how to file to get it. From a random site pulled up on Google that I thought he’d find useful:

The $400/$800 Making Work Pay tax credit took effect in July 2009. Workers who have taxes withheld from their paychecks will see a decrease in the federal income taxes withheld from each paycheck by about $30 per paycheck every two weeks or $60 for couples.

…The credit will phase out by two percent of any income over $150,000 for couples and $75,000 for others. Couples earning more than $190,000 and individuals earning more than $95,000 will not benefit from the credit.

Unlike the 2008 economic stimulus tax rebate checks that were mailed to taxpayers in a lump sum, the government is hoping that offering the $400 Make Work Pay tax credit as a reduction in payroll deductions will encourage taxpayers to spend the credit rather than save the money or use it to pay down debt.

We are encouraging younger people to spend rather than save. And perhaps how this works is by giving the money back in $30 dribs and drabs that they don’t notice. Wasn’t this how we got into trouble in the first place? Why does government think it should encourage consuming new goods rather than paying off debt?

Karl noted a few weeks ago that the government is ending this credit as well, since it was expected to spend $116.2 billion over ten years, quite an expensive program. Perhaps one reason for cutting it was that voters like my son didn’t even know they were getting it. When I told my son how he had gotten this credit already, all I got was the cryptic ‘K’.

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After all the TARP, deficit exploding stimuli, you can’t possibly be surprised that DC’s shills would recommend saving. Please say you’re not surprised.

Robert17 on February 18, 2010 at 8:51 PM

Wow, the government is such a good teacher on finances. This here just proves it. I am so glad the DOE budget has gotten big boosts the last two years. /s

Seriously, the government knows that without a revival in consumer spending their overly optimistic blood red budget is toast.

Dear young entrants to the workforce:

As soon as you are eligible, contribute 2 or 3% of your pay to a 401k. You will not miss this small percentage, and it reduces your pretax income so you will pay less taxes. If your company offers a matching percentage up to, say, 4%, then put in that maximum as it is free money for you.

The next time you get a raise, put 50% percent of it towards increasing your 401k percentage. You will still have an increase in pay to enjoy. Do this every year until you reach the maximum percentage allowed and watch your savings grow. Keep in mind that this may be the only thing between extreme poverty and you in your old age, as SS is on it’s death bed. The end.

See, government, this is how to give good advice and examples to the future of our country. You are welcome.

GnuBreed on February 18, 2010 at 11:45 PM