January 26, 2009 12:12 PM | | Bookmark and Share

The tax cuts proposed as economic stimulus by Democrats in the U.S. House of Representatives are far more targeted towards working class people than the tax cuts proposed by their Republican counterparts. The Democratic proposal is therefore more likely to be effective stimulus, since it would put money in the hands of people likely to spend it quickly, providing an immediate boost to demand for goods and services.

The House Democrats have offered a plan (H.R. 598) that costs over $800 billion, and about $275 billion of that would go towards tax cuts that would (mostly) be in effect during 2009 and 2010. About half of the tax cut portion of the bill consists of a refundable “Making Work Pay Credit” worth up to $500 for most working people (or $1,000 for married couples). This is one of several provisions in H.R. 598 that include refundable credits, which would help those who work and pay federal payroll taxes but who do not earn enough to have federal income tax liability. Other provisions offer benefits to businesses and expand tax breaks for state and local tax-exempt bonds.

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