We have all heard about the debate regarding the percentage of the Obama Stimulus Bill that is tax cuts as opposed to expenditures. Originally, there was discussion that it should be up to 40% of the total of the bill. There were arguments because it had slipped to 33%. In the final package, I don't see much at all in the way of real cuts -- certainly not tax cuts that will stimulate the economy in the near future.
Clarity in tax laws is what affects the economy, even with higher taxes. For example, last week California cut a ridiculous budget deal that had really clear tax increases, which are sure to slow the economy. The four points – raising the sales tax 1%, raising the gas tax 12 cents per gallon, raising the car license fee from .65% to 1.15%, and putting a surge charge of 2.5% on taxpayer's tax bills for the next couple of years are all calculable and predictable. You know that when buy gas or pay your annual car fee, you are going to get hit for more taxes. When you buy a TV for $1,500, you can plan for $15 extra in sales tax.
With the elements of the Stimulus Bill related to taxes, I cannot tell you when or if there will be benefits that actually materialize. For individuals, a large portion of the tax savings is a one-year correction to the tax code to limit tax hitting about 70 million Americans with the Alternative Minimum Tax (AMT). Allowing for the fact that only one person in a back office on the fifth floor of a very large building in Washington actually understands the AMT, how are these 70 million Americans going to know that they saved taxes from a tax they never knew existed? How are they going to quantify how much they are saving? Even if they could figure out what they are saving are they now going to go out and spend this mystery savings? Even if they knew about these savings, they would not happen until March or April 2010. So much for this "tax cut" being a stimulus.
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