By Reihan Salam
January 1, 2013 9:38 P.M.
The left-of-center group Citizens for Tax Justice (CTJ) has released a report making the case for the Making Work Pay tax credit. Specifically, CTJ argues that Making Work Pay is preferable to the Social Security payroll tax cut on the grounds that it is more progressive and more cost-effective:
If the Making Work Pay Credit1 is revived for 2013, 50.3 percent of the benefits would go to the bottom three-fifths of Americans while 22.2 percent of the benefits would go to the richest fifth of Americans.
If the payroll tax cut in effect this year is extended through 2013, just 26.8 percent of the benefits would go to the bottom three-fifths of Americans while 46.8 percent of the benefits would go to the richest fifth of Americans.
Matthew O’Brien of The Atlantic recently called for reviving Making Work Pay:
The end of the payroll tax cut, and the lack of any substitute, is the biggest thing missing from the fiscal cliff deal. Without it, the Tax Policy Center figures middle-class households will see their after-tax incomes fall around 1.5 percent, which the CBO estimates will cost us around a half million jobs. Why has the payroll tax cut become such a political orphan? Well, Republicans aren’t crazy about more stimulus, and Democrats aren’t crazy about a tax cut that makes Social Security more dependent on general revenues, and thus less politically solvent. But there is a way around this. It’s an idea Democrats used in 2009 and floated again a few months ago, before dropping. That’s bringing back the Making Work Pay tax credit — and doubling it.
Making Work Pay was the one stimulus tax credit that didn’t survive past 2010. It mimicked the payroll tax cut, except it worked through the income tax, so it didn’t deplete the Social Security Trust Fund. Households got a refundable credit equal to 6.2 percent of earned income, with a maximum credit of $400 for singles and $800 for couples. Republicans didn’t like it, so the payroll tax cut replaced it in 2010.
O’Brien called for doubling Making Work Pay so that it would be the same size as the Social Security payroll tax cut, but as CTJ suggests, that fact that Making Work Pay was considerably smaller could be seen as a virtue.
The National Review: Making Work Pay vs. the Payroll Tax Cut