President Obama’s White House blog team reports that “President Obama’s aims (sic) to restore fairness to the tax system by providing the Making Work Pay tax cut to 95 percent of working families….”
Of course, there is a small problem here. 95% of working families don’t pay taxes. One-third don’t pay any income taxes at all. So how can we give them a tax cut?
Frankly, we can’t. But we can give them money.
That is what a ‘refundable tax credit’ is. It’s largely a “tax cut” on those who owe no taxes—in other words, just giving people money. This is literally robbing Peter (taxpayers) to pay Paul (those who don’t pay taxes). When you hear someone has a ‘ negative tax liability’ that simply means that the government owes them a check.
Is paying the poor really all that bad, though? Yes. It provides an incentive for people to remain in poverty. It also costs money which we don’t have, and creates a voting bloc of people that are against tax reform, because they like paying no taxes and getting more benefits. Most worrisome, it is a step toward full income redistribution.
Cutting taxes on those who don’t pay them isn’t a tax cut. It violates ATR’s basic principles of lower spending, flatter taxes, and smaller government. It’s a political spending program that incentivizes people to spend time waiting in lines at government bureaucracies instead of getting job training. It’s redistribution.