Archive for February, 2010

Tax cut vs. income redistribution

Sunday, February 14th, 2010

Two of these scenarios are tax cuts. One is income redistribution. See if you can tell which is which.

1. The government reduces tax rates on a prior tax year. Based on these new rates, the government calculates how much less tax each taxpayer would have paid. The government send a rebate check for that amount.
2. The government reduces tax rates for the current or a future tax year. With all taxes taken into account, taxpayers overall now pay less tax.
3. The government hands out checks to most taxpayers. You don’t get a check if you paid too much taxes, and you don’t get it if you are a business. The check amounts are only loosely based on the tax you paid, and in some cases you get more than you paid in taxes.

The first scenario retroactively reduces taxes. It may not be cost-effective to calculate, but that is how you reduce taxes for a prior year, should you want to. The second reduces taxes for an upcoming year. The third taxes money from one group (taxpayers, which includes the rich and business) and distributes it unequally to another group (poor and middle class citizens). Taking money from one group and giving it to another group, even with some overlap, is by definition income redistribution.

In the future when I hear “Bush tax cuts” I will correct the speaker and point out this wasn’t a tax cut, it was income redistribution.