The World's Greatest Tax Cut?

| Tue Oct. 19, 2010 1:48 AM EDT

Michael Cooper writes today that the Obama tax cut, which was part of the 2009 stimulus bill, was so subtle that lots of people think their taxes have gone up under Obama:

In a troubling sign for Democrats as they head into the midterm elections, their signature tax cut of the past two years, which decreased income taxes by up to $400 a year for individuals and $800 for married couples, has gone largely unnoticed. In a New York Times/CBS News Poll last month, fewer than one in 10 respondents knew that the Obama administration had lowered taxes for most Americans.

....The tax cut was, by design, hard to notice. Faced with evidence that people were more likely to save than spend the tax rebate checks they received during the Bush administration, the Obama administration decided to take a different tack: it arranged for less tax money to be withheld from people’s paychecks.

They reasoned that people would be more likely to spend a small, recurring extra bit of money that they might not even notice, and that the quicker the money was spent, the faster it would cycle through the economy.

....But at least one prominent economist is questioning whether the method really was more effective. Joel B. Slemrod, a professor of economics at the University of Michigan, analyzed consumer surveys....After the Obama tax cut took effect, he said, only 13 percent said they would use the money primarily to increase their spending.

Wait a second. Earlier in the year, before election hysteria had fully set in, 12% of Americans knew that Obama had cut their taxes. And according to Slemrod's research, 13% said they planned to use the money to increase spending. In other words, virtually every single person who knew about the tax cuts said they planned to spend it. Doesn't that suggest that the people who didn't know about the tax cut probably spent it too? The withholding trick might have been lousy politics, but it looks like it was probably surprisingly good policy.

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