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Americans Will Notice Obama’s Middle-Class Tax Cut When It’s Gone

The most curious aspect of the feverish debate over tax cuts is that President Obama cut taxes for more than 90 percent of working Americans, yet more than 90 percent of Americans have no idea this happened.

Moreover, Senate Republicans have proposed letting this Making Work Pay tax credit, worth up to $400 for individuals and $800 for couples, expire on December 31.  This means that nurses, welders, computer technicians, and other middle-class workers would see their paychecks shrink (since the credit reduces the amount the federal government withholds from workers’ paychecks) starting on January 1.

While they may not notice the credit now, these middle-class Americans will probably notice it when it’s gone.  After all, $800 is real money for a typical family, especially in today’s economy.

Letting Making Work Pay expire would be bad news not only for these families, but also for the small businesses that rely on them as customers.  If people who tend to live paycheck to paycheck have those paychecks cut, they obviously will spend less.  That’s why the Congressional Budget Office has concluded that credits like Making Work Pay have more than twice the bang-for-the-buck in promoting growth and jobs than President Bush’s tax cuts for high-income people (which some policymakers are so determined to extend).

Fortunately, there is still time for Congress to realize that now is the worst time to raise taxes on middle-class people and to make sure that, come January first, their paychecks are spared.

Chuck Marr
Vice President for Federal Tax Policy