White House Firm on $500 Tax Credit in 'Stimulus' Package

By Paula Cruickshank, Washington Staff Writer

White House Press Secretary Robert Gibbs indicated that the Making Work Pay tax credit in President Obama's economic plan is not a negotiable item with Congress as it continues deliberations on a stimulus package. Asked at a press briefing on January 29, 2009, if there were any sacrosanct items in the president's plan that were not negotiable, Gibbs pointed to the pay-related tax credit that is geared toward lower-income earners only.

"I think you've heard the president talk about believing that the Make Work Pay tax cut that he ran on in the campaign and -- that is part of this bill -- is something that he believes quite strongly in," Gibbs noted. According to the White House spokesman, the tax credit makes good economic sense because it would "put money back into the pockets of people who have watched their wages decline as they've worked harder, as their bills have gotten more expensive, as their expenses have mounted."

Because the $500 tax credit is structured to be paid out each pay period over the course of the year (about $10 a week), those eligible are more likely to spend it than if they received the money in a lump-sum payment, Gibbs said. The tax credit is aimed at lower- and middle-income individuals and families who, Gibbs said, "are likely to take that money and spend it and get this economy moving again."

The Making Work Pay credit was part of the House-passed bill and was expanded in the recent Senate Finance Committee markup of the measure. Under the Senate bill, the credit also would make one-time payments of $300 to individuals on fixed incomes, primarily Social Security recipients and disabled veterans.

The House bill would allow a credit against income tax in an amount equal to the lesser of 6.2 percent of an individual's earned income up to $500 or $1,000 for married couples filing jointly. The credit is phased out when adjusted gross income exceeds $75,000 for individuals or $150,000 for married couples. The tax credit is refundable, which means even those with no income tax liability will still get to collect the $500 tax credit.

The tax credit is retroactive to the beginning of 2009 and extends though 2010. Qualified individuals have the choice to take the credit through a reduction in wage withholding or in a lump sum payment when filing their return for the tax year.

Posted February 16, 2009.