In the article, "Your Paycheck Is About To Shrink," Blake Ellis reminds us of a tax credit that will expire on January 1, 2011 unless it is renewed. The Making Work Pay tax credit has saved between $400 and $800 dollars a year for single or persons filing jointly. This tax credit has been in place for the past two years and has been forgotten or at least not top-of-mind for most Americans. The author states that it has been ignored because of the focus on keeping the high wage earner portion of the Bush tax cuts from being renewed. However, the author points out that 90 percent of Americans have been the beneficiary of the Making Work Pay tax credit and many are not in the position financially to have their paychecks increase.
Ellis does explain that if the tax is not renewed it would cut the cost of government by $60 billion dollars. However, Ellis points out that the same $60 billion dollars could be used in spending to generate jobs and strengthen business.
I believe Ellis is right is his view that the $60 billion dollars would be put to better use in spending and not in government cost reduction. A negative change in income will shift the entire demand curve to the left. Because the tax credit is affecting people at all income levels except the top 10%, all levels of purchasing will be affected. Also, a change in income on the demand curve is very different from a change in the price of goods. A change in the demand curve by income is much more elastic than the change in price. I hope more people learn of this 'forgotten' tax credit and our representatives can get it renewed.