What Tax Cut!?!?

October 18, 2010

From Obama, the Tax Cut Nobody Heard Of

By MICHAEL COOPER

HUNTERSVILLE, N.C. — What if a president cut Americans’ income taxes by $116 billion and nobody noticed?

It is not a rhetorical question. At Pig Pickin’ and Politickin’, a barbecue-fed rally organized here last week by a Republican women’s club, a half-dozen guests were asked by a reporter what had happened to their taxes since President Obama took office.

“Federal and state have both gone up,” said Bob Paratore, 59, from nearby Charlotte, echoing the comments of others.

After further prodding — including a reminder that a provision of the stimulus bill had cut taxes for 95 percent of working families by changing withholding rates — Mr. Paratore’s memory was jogged.

“You’re right, you’re right,” he said. “I’ll be honest with you: it was so subtle that personally, I didn’t notice it.”

Few people apparently did.

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. Half of those polled said they thought that their taxes had stayed the same, a third thought that their taxes had gone up, and about a tenth said they did not know. As Thom Tillis, a Republican state representative, put it as the dinner wound down here, “This was the tax cut that fell in the woods — nobody heard it.”

Actually, 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.

Economists are still measuring how stimulative the tax cut was. But the hard-to-notice part has succeeded wildly. In a recent interview, President Obama said that structuring the tax cuts so that a little more money showed up regularly in people’s paychecks “was the right thing to do economically, but politically it meant that nobody knew that they were getting a tax cut.”

“And in fact what ended up happening was six months into it, or nine months into it,” the president said, “people had thought we had raised their taxes instead of cutting their taxes.”

There are plenty of explanations as to why many taxpayers did not feel richer when the cuts kicked in, giving typical families an extra $65 a month. Some people were making less money to begin with, as businesses cut back. Others saw their take-home pay shrink as the amounts deducted for health insurance rose.

And taxpayers in more than 30 states saw their state taxes rise, according to the Center on Budget and Policy Priorities.

That is what happened here in North Carolina. The Treasury Department estimated that the federal tax cut would put $1.7 billion back in the hands of North Carolina taxpayers this year. Last year, though, North Carolina, facing a large budget shortfall, raised a variety of state taxes by roughly a billion dollars.

“It was a wash,” said Mr. Tillis, the state representative.