- The Washington Times - Sunday, February 1, 2009

President Obama’s tax cuts for America’s workers in the economic-stimulus bill making its way through Congress will mean about $10 to $20 more in weekly paychecks, though economists are divided over whether that will have any impact on the recession.

Mr. Obama’s “making work pay” tax credit will mean an additional $500 for individual taxpayers and $1,000 for families over a year. In terms of its impact in a depressed $14 trillion economy, some economists say it will have little, if any, effect on consumer spending, while others say the increase in pay would be significant among lower-income workers.

The House Republican stimulus proposal, on the other hand, called for cutting the two lowest income-tax rates from 10 percent to 5 percent and from 15 percent to 10 percent. Republicans estimate the new rates would reduce taxes for married couples filing jointly by up to $3,200. Supporters say the Republican tax cuts would produce twice as many jobs as the Democrats’ bill at half the cost.

But as the Democrats’ House bill headed to the Senate, opinions differed sharply over its effect on taxpayers and the troubled economy.

“It has virtually no bang for the buck because it doesn’t affect incentives for working, investing and things that actually make the economy go,” said economist J.D. Foster at the Heritage Foundation.

“Even if you get all of the money at once in a government check or over a quarter of the year, it will have the same effect on the economy — zero,” Mr. Foster said.

But economist Gary Burtless at the Brookings Institution said the impact of the House-passed tax cut, especially for two-earner families, to a large extent depends upon how it is perceived by workers.

“If you are a single person, you are going to get about $10 a week more in your paycheck, and married couples will get about $20 a week,” Mr. Burtless said.

“Since we are talking about a tax credit of 6.2 percent of earned income, you are going to hit that $500 if you’ve earned a little over $8,000 a year, so it means anyone who earns minimum wage will get the full $500. Almost everybody is going to get the full tax credit,” he said.

“But the impact on taxpayers should be larger if this is perceived as permanent, that they are going to have $1,000 more in their pay that they get to keep, then they would have an incentive to consume a bigger percentage of it. And that’s the point of the tax cut, to boost consumer spending,” he said.

“The $100,000 question for many people is how they perceive it,” he added.

But Republicans leaders in Congress say these worker tax cuts, which will total $145 billion over two years, are only a relatively small part of the $819 billion stimulus bill, most of which is made up of spending on federal agencies, infrastructure and public works projects, plus aid to the states and safety-net programs.

Rep. Tom Price, leader of the House’s conservative Republican caucus, says he is certain of two things: It will pass Congress, but it will fail to jump-start the economy.

The three-term Georgia congressman and orthopedic surgeon, a rising star in the House’s GOP leadership ranks as the chairman of the Republican Study Committee, called Mr. Obama’s plan, which his group opposes, “the non-stimulus package” because, he said, every time such spending programs have been tried, they have failed to boost economic growth.

“The problem is, it won’t work, and so the American people will be watching at some point in the future to say, ‘Well, what happened?’ ” he said in an interview with The Washington Times.


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