The 2009 economic stimulus came to the middle class in the form of the Making Work Pay credit, which provided a $400 credit for single taxpayers or a $800 credit for married taxpayers filing jointly across two years. The credit was embedded in W-2 paychecks, hardly noticeable to many.
The credit was also designed to last throughout 2009 and 2010, automatically expiring in 2011, when the economy was expected to be in better shape. Without a congressional action to renew the credit, taxpayers will notice a lower net income on each paycheck when the year beginnings — lower than it would be anyway with the other taxes that start at the beginning of the year but are fully paid in the middle of each year.
Most of the recent talk about taxes is on the possible repeal of lower tax rates for those with adjusted gross incomes over $250,000, a move that would result in a 3 percentage point increase in just the highest marginal rate. This change would effect a tiny portion of American taxpayers, but if the Making Work Pay credit isn’t renewed, all single taxpayers earning $75,000 or less or married-filing-jointly taxpayers earning $150,000 or less will pay more. In terms of numbers, this credit benefits 90% of all taxpayers or 110 million households.
The credit costs $60 billion. That’s certainly a lot of money, but it’s small when compared to the cost of extending the tax cuts for individuals earning over $200,000 or couples earning over $250,000. That move would cost $700 billion, but pales in comparison with the $3 trillion cost extending the tax cuts for everyone else, an expense that can most likely not be avoided.
The Making Work Pay tax credit, as it allowed most taxpayers to spend a little more, may have helped support the economy’s feeble recovery over the past year. With the economy not yet fully recovered even though we are no longer in a technical recession, should the tax credit be extended?