Stealth tax cuts did not encourage spending

A calculator and a tax guide.


JEREMY HOBSON: Congress returns to work today in Washington. And the fate of the Bush Tax Cuts that expire at the end of December are likely to be high on the agenda. But there's another tax break that also runs out soon. It was included in the 2009 stimulus package and was meant to get consumers spending again. Did it work?

Marketplace's Nancy Marshall Genzer reports from Washington.

NANCY MARSHALL GENZER: The White House thought people would spend the extra money if they didn't know about it. Ninety five percent of us just had less tax taken out of our paychecks -- about $65 dollars a month for families. But University of Michigan economist Joel Slemrod says most of us saved the money or paid down debt. He asked about a thousand taxpayers what they'd do with the stealth cash. Only 13 percent said they would spend it. Slemrod says most people are like him -- on a budget. And the recession hasn't helped encourage spending. Only a separate tax rebate check would make him a big spender.

JOEL SLEMROD: If I got a check in the mail it might convince me to splurge on a nice dinner with my wife.

But Chuck Marr at the Center on Budget and Policy Priorities says Slemrod is only looking at upper income taxpayers.

CHUCK MARR: Middle class, working class people who live paycheck to paycheck -- if their paychecks are larger, they're going to spend more.

Marr says, if Congress lets the stealth tax cut expire, those workers' paychecks will shrink. And they'll spend less.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.
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Mr. Slemrod's assertions are absurd. It's hard to believe he's actually a Michigan economist. Americans are still spending more than 93% of their take-home pay. If you give them $65 more, they spend about $60 of it and save $5.

Someone might SAY they would save any extra money in their paycheck. But if you observe actual behavior, you see that we spend most of what we get. Marketplace should be ashamed for running this story. Is Mr. Slemrod really this dumb? Or did Marketplace miss something when reporting this?

If the average person notices an extra twenty bucks in their pay check, I doupt they are going to go out and spend it on something big. It probably means a little better on day to day expenses.

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