Not just that most of the “cut” is actually composed of refundable tax credits that amount to huge transfer payments to those with no income tax liability. Rather, it is what is done to the marginal tax rate (the tax you pay on the next dollar earned) by most Americans.

Or, explained by the Wall Street Journal,

Because Mr. Obama's tax credits are phased out as incomes rise, they impose a huge "marginal" tax rate increase on low-income workers. The marginal tax rate refers to the rate on the next dollar of income earned. As the nearby chart illustrates, the marginal rate for millions of low- and middle-income workers would spike as they earn more income.

Some families with an income of $40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As public policy, this is contradictory. The tax credits are sold in the name of "making work pay," but in practice they can be a disincentive to working harder, especially if you're a lower-income couple getting raises of $1,000 or $2,000 a year.

Or put differently, that means there will be an effective tax INCREASE for workers making more than $25K a year.

Posted by: Greg at 11:19 AM | No Comments | Add Comment
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