"Refundable" Tax Credit

Refundable tax credits. Sounds nice. The words tax and refund in one sentence. Kind of rolls off the tongue doesn't it? And, who wouldn't want a tax refund? What about a tax credit? We have always known, since Congress passed the 16th Amendment to the Constitution, that taking people's money away from them and then giving it back in dribbles and drabs if they do certain things is an extremely powerful method of behavior modification and is the reason that Congress will NEVER pass the Fair Tax.

How many of us installed new insulation in our homes back in the 80's when there was an "Energy Tax Credit" to do so? Yeah, we got to keep up to $800 as a credit. Never even sent it to the feds. And if we had already sent it to them (in the form of payroll deductions), we got it all back when we filed our tax return the next year. That is what a credit is... a credit against taxes that you owe.

Well, what if you don't owe any taxes? That is not hard to imagine anymore. The lower 50% of wage earners pay about 3% of federal income taxes. Here is a page from the Great Satan himself, Rush Limbaugh, that illustrates this phenomenon.

OK, so you don't owe any taxes and virtually all of the amount that you paid in over the year is going to be refunded to you after April 15th. Along comes the Anointed One who is going to 'give' you a $4000 tax credit if you send one of the kids to college. But you don't have any tax liability to be offset by the credit. What to do? Easy! Refundable tax credits to the rescue!

Obama proposes to 'refund' you the amount of this and other tax credits, even if you don't owe taxes. Question: What is it called when you get money given to you that you didn't earn? That's right... WELFARE. A refundable tax credit is welfare. You will never hear the hope-meister call it that. It is so much easier to use a wonkish term to obfuscate the real intent.

(Don't confuse a tax credit with a tax deduction. A tax deduction just reduces the amount of income that is subject to taxation. If you have a $1000 tax deduction and you are in the 15% tax bracket, then you reduce your taxes by 15% of $1000, or $150. A tax credit reduces your taxes by the whole $1000.)

Since the Dems have worked hard (the Republicans have been complicit as well) over the years to reduce the taxes paid by a majority of Americans to zero, they have run out of ways to give money back to average working people through tax coercion.

Remember this: The politician's goal is to have a voting MAJORITY that pays no taxes, so that when they raise taxes on the remaining MINORITY, they will have no consequence at the polls. This point is KEY to understanding their motivations and it is probably the biggest ASTERISK you need to be aware of whenever you see their lips moving.

Also you will note how they call FICA or Social Security deductions, the Payroll Tax. It is not a deduction for your retirement, it is a Payroll Tax. As such, it will be easier, semantically, to reduce a TAX instead of a contribution to your retirement. If Obama becomes #44, I can guarantee you that after eight years, the lower 51% will not be paying FICA or Medicare out of their paycheck. I will also wager that the employer will pick up the tab.

(This reminds me of the old joke about the Indian (excuse me, Native American) who, when told about Daylight Savings Time, said that it was like cutting off the bottom of his blanket and sewing it to the top so that that the blanket would be longer.)

The Wall Street Journal had an excellent opinion piece on this yesterday. It is well worth the read.

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