Thursday, January 24, 2008

Why I'm Not a Fan of the Tax Rebate

I actually cringed upon hearing that we will receive tax rebates. I'm not an economics person, but I don't think the tax rebates are the best way to stimulate the economy. I, for one, will take maybe $100 and use it as mad money, and then split the rest evenly between my downpayment fund and my debt.

Here's what will likely get me in to trouble with some people: I am incensed that people who do not pay income tax will get a rebate. These are people that are tax-exempt -- people and families that don't make much money or are the working poor. A rebate is a refund of something paid. Since the tax-exempt are, well, tax-exempt and not actually paying taxes, they should not get a rebate! So, instead of everyone who actually pays taxes getting a rebate (it's phased out for single people with an income greater than $75k), those people are being denied the rebate so that someone who hasn't actually paid income tax can get free money. In addition, the rebate that people will receive is smaller because the tax-exempt will receive rebates.

Say what?

Yes, I know that if someone is making $75k, the rebate is not likely to make a huge difference in their lifestyle, whereas it can make a big impact for the working poor. I get that.

The lower classes are statistically far more likely to actually spend the rebate, and get that money back into the economy. I get that, too.

I still don't agree with it. It feels like a sort of punishment to anyone middle-class or above. "Oh, well you have a regular job and make a reasonable income, so we're going to take part of your rebate and give it to someone who doesn't in fact pay income tax, and you over there, you make too much money so you're not going to get anything." Niiice. Punished for success or enforced charitable giving?

I've read several articles online saying how middle and upper classes generally saved the 2001 rebate or put it towards debt, and how the lower classes were far more likely to go out and immediately spend the money. One statistic that I've seen several times, is that only 2/3 of the total 2001 tax rebate monies were actually spent and put back in the economy.

It's not my goal with this to sound elitist or discriminatory -- not at all, because I'm not. It just simply doesn't make sense to call something a rebate when it's being distributed in part to people who didn't actually contribute.


Jen said...

Is it really just a semantics issue? Or do you think that people in low-income families (including single parents and the working poor) do not deserve to get any assistance from the government?

Shana said...

Hi Jen,
I believe it's semantics. I'm not against government assistance for those in need. I should also point out that I don't think of a tax rebate as "assistance" for low-income individuals and families -- the goal of the rebate is to be assistance for the *economy.*

So the conundrum is this: give the money to people who are statistically higher to spend it quickly? Or give the money to people who actually paid taxes?

Anonymous said...

I also disagree with the rebate, but it really is a mute point because whoever gets a rebate this year will have to pay it back next year regardless of whether they owe taxes. It is simply borrowed money from taxpayers next year to stimulate the economy. And the people most likely to spend it are the ones who can least afford to.

Kristin said...

To Anonymous: can you elaborate on what you mean by "whoever gets the rebate will have to pay it back next year?"

How will they pay it back? Will the rebate be taxed?

Anonymous said...

You are jealous! haha

John Cloudman said...

If it's anything like the 2001 rebate, it's even stranger than you allude to. I think that why this rebate happens is because they're cutting the existing 10 percent tax rate on the first $6,000 in income for a single person and the first $12,000 for a couple to 0 percent for 2008. They're going to send you the check in May.

However, this will likely complicate 2008 tax filing (which will be filed in spring 2009). The tax tables in the 2008 1040 package will probably take into account the fact that this has already been refunded. However, this means that if you don't get a rebate check because you make too much, you're actually going to get this money back eventually - just not until spring 2009. This is what happened in 2001.

In 2001, if you didn't get a rebate from the feds because you made too much money, you generally got an additional reduction in your income tax filing the next year due to a "Rate Reduction Credit". It was line 47 on a 2001 1040.

If the 2008 rebates are anything like that, high income earners will get this money, just not until spring 2009. Good stuff, huh?