Tax Cuts Versus Tax Rebates/Credits

When the income tax rate is cut, the impact is almost immediate. Payroll tax deductions will be quickly lowered. So will self-employment and corporate quarterly tax filings. In both cases, that money becomes immediately available to flow back into our economy and grow it.

Tax rebates and tax credits, on the other hand, don't have any benefit to the taxpayer or to our economy until that person or company files their annual tax return and actually receives a check in the mail; which could be months after filing an income tax return. That means that more than a year will pass before any impact to our economy is actually seen.

That's why tax cuts are so powerful. If you need to stimulate the economy quickly, that's the only way to go. Further, tax credits and tax rebates carry additional administrative costs as that money moves from your pockets to the Federal government; and, then, back again to you. Actually, the non-partisan Cato Institute calculated this "dead weight" to be about 25 cents on every tax dollar that is being collected and redistributed by our Federal government. Therefore, it takes $1.25 in collected taxes "from you" so that our Federal Government can digest it and "give you" back a check for one dollar. Just think about that when the Republicans talk about tax cuts and the Democrats talk about tax rebates and tax credits in order to stimulate this economy.

One last thing. Democrats like sending you a check; even though its more costly, less effective, and hardly timely. They like the psychological power and the pure political message it sends to you when you receive that rebate check in the mail. Mostly, it's because they can attach political ownership to it. A check is absolutely more powerful, politically, than you simply seeing a small decrease in your payroll tax deductions. With Democrats, it's always about the appearance of every action and not ever really about trying to save our economy.