The American Recovery and Reinvestment Act was designed to get the economy moving again by getting people to spend money. It’s off to a slow start, because most of what the plan calls for is new spending: new infrastructure projects, new subsidies for alternative fuels, new educational stimulus money, and more local handouts. But there’s already a “stimulus” plan in place that can handle all that, and more!
The Federal earned income tax credit gives money to low-income workers, to compensate them for payroll taxes. Since there was already a payroll tax cut in an earlier stimulus plan, why not just boost the Federal earned income tax credit?
There are a few reasons the earned income tax credit hasn’t been expanded:
- It isn’t targeted. The earned income tax credit doesn’t necessarily help build new infrastructure, boost home prices, or send people back to school. It may go straight into savings, which is not something stimulus plans generally try to do.
- It helps people who are still employed. With the unemployment rate likely to hit 10%, fewer and fewer people will be eligible for a tax credit that pays back payroll taxes. Instead of giving more money to people who are still working, the current stimulus plan tries to do two things: create new jobs, and reduce competition for existing jobs by sending people back to school.
- It’s harder to notice. A one-time credit giving back money that was already paid into the tax system is hard to notice. It sounds like an accounting gimmick, not a benefit (and maybe it is). But, for good reasons or for bad, it’s easier to notice having extra money if it shows up in a roundabout way, so the federal earned income tax credit doesn’t get as much attention.
The good news? The Federal earned income tax credit is one of the most common tax credits available to filers. Find out if you’re eligible!
Great article thanks for sharing!
You should always speak with an accountant when doing the more complicated tax forms