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Old 12-03-2010, 08:25 PM   #81
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Originally Posted by Texas Proud View Post
So the $8K tax credit for buying a new house is not 'spending', but the $4K cash for clunkers is... but if I had bought a house, I would have $8K in my pocket... if I bought a new car with a clunker... I would not... I just would have paid less for the car...

So, which is spending and which is not
This seems like a fair critique to me. One of the things illuminated by the deficit commission is the magnitude of "tax expenditures." I think the number is $1T annually.

In any real sense, a $1,000 refundable tax credit and a $1,000 transfer payment are exactly the same thing, only one is considered a tax cut and the other spending.
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Old 12-03-2010, 09:33 PM   #82
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Originally Posted by Gone4Good View Post
In any real sense, a $1,000 refundable tax credit and a $1,000 transfer payment are exactly the same thing, only one is considered a tax cut and the other spending.
This statement couldn't be more wrong. A transfer payment requires the entire infrastructure of the government - IRS payroll, computer systems to collect the revenue, Treasury disbursement of the payment, the cost of the agency oversee the transfers, etc. An exclusion from the tax base requires none of this infrastructure. The rare situation of a refundable tax credit that exceeds total tax liability requires a very small portion of the infrastructure to process the refund.

How can anyone think these are exactly the same thing?
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Old 12-03-2010, 09:51 PM   #83
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Originally Posted by SunsetSail View Post
The rare situation of a refundable tax credit that exceeds total tax liability requires a very small portion of the infrastructure to process the refund.
For the record--there's nothing rare about a refundable tax credit exceeding total tax liability.

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Of the 42.5 million tax returns that pay no income taxes, roughly 53 percent received some form of a refundable credit—either the EITC or the child tax credit. In 2004, Uncle Sam paid out about $33 billion in “refundable” checks to the families and single individuals who qualified for the Earned Income Credit and another $9 billion to families who were eligible for the child credit.
Figure 2 demonstrates the effect that refundable credits have in not only erasing the income tax burden for the lowest-income Americans, but transferring income from wealthier taxpayers and, thereby, shifting the burden further up the income scale.
Figure 2. Effect of Refundable Tax Credits on the Distribution of the Income Tax Burden
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Old 12-04-2010, 07:17 AM   #84
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Originally Posted by SunsetSail View Post
This statement couldn't be more wrong. A transfer payment requires the entire infrastructure of the government - IRS payroll, computer systems to collect the revenue, Treasury disbursement of the payment, the cost of the agency oversee the transfers, etc. An exclusion from the tax base requires none of this infrastructure. The rare situation of a refundable tax credit that exceeds total tax liability requires a very small portion of the infrastructure to process the refund.

How can anyone think these are exactly the same thing?
Um, a refundable tax credit requires most of those things. The IRS has to collect taxes, determine who's eligible for the credit, and return the money. Don't forget the billions in private sector compliance costs that multiply every time one of these new credits is added to our already ridiculous tax code.

But who cares? Your main point suffers from the misconception that our spending problems are mostly a matter of administrative overhead. That isn't true. The entire Federal payroll is only about 5% of the budget. And more than half of those employees are dedicated to Defense and The Postal Service. So even if tax credits were costless from an administrative perspective, which they're not, we'd be talking about the difference between a $1,025 transfer payment and a $1,000 tax credit, at the very high end. Big deal.

A better approximation for the cost of administering transfer programs is Social Security, whose admin expenses run just 0.9%

But since we're nit-picking irrelevancies, I'll amend my comments as follows . . .

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Originally Posted by Gone4Good View Post
In any real sense, a $1,000 refundable tax credit and a $1,000 transfer payment are exactly essentially the same thing, only one is considered a tax cut and the other spending.
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Old 12-04-2010, 12:07 PM   #85
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None of this changes the bottom line that a spending subsidy of $X paid by the government will take $X plus $Y of revenue to fund while a tax exclusion will only take $X to fund and will be applied to the target party much faster.
I don't see it that way. Suppose the federal government wants to encourage state governments to borrow money for public works. It can make bond interest tax exempt if the bonds meet certain criteria, or it can let the interest be taxable and send a check to the state government for xx% of the bond interest it pays. It's not clear to me that the second is more expensive to administer than the first. (In fact, the second seems easier because the first impacts thousands of tax returns, some of which will be audited.)

I also think that the second is cheaper overall from a tax perspective. Rational individuals will buy tax exempt bonds only if the taxes they save are > the interest they give up. So there must be a value for xx where the subsidy check from the federal gov't would be less than the lost federal taxes, and the check would also be greater than the states' interest savings in the first option.

[ Of course, I'd prefer that the federal government just stayed out of state borrowing entirely - drop the tax exemption and don't provide a subsidy.]
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