“If line 55 is more than line 46, enter -0-“—Internal Revenue Service, Form 1040, line 56.
In a couple days, I will buy a house. I’m arranging to install a heat pump with a ground loop heat exchanger. (That’s a form of solar energy, not geothermal.) There is a federal tax credit that would reimburse 30% of my expense up to $2,000 for this bit of shovel-ready infrastructure development, but I will receive almost none of that. In addition, Congress is thinking of dangling before me an alleged $15,000 tax credit for being privileged enough to buy a house. (We chose to ride out the bubble by renting the past five years.) This credit is supposed to motivate buyers and puff the real estate bubble back up, but for me, it offers absolutely no incentive.
For 2008, my federal income tax bill was $2,700. For 2009, mortgage interest will be deducted from my income, and an additional dependent will become part of our household, so it will be impossible to cut my income tax bill further; it’ll already be zero. This situation produces two contradictory concerns. The first is that a $15,000 credit for home purchases will be fully utilized only by people with high incomes; it is very literally a tax break aimed at the rich, those who otherwise would owe more than $15,000 on their income taxes, people like Secretary of the Treasury Tim Geithner when he remembers that he receives income. The second is that there shouldn’t be citizens who shoulder no portion of the federal income tax. My household is larger than most, but our income is somewhere around the 80th percentile, so if I won’t pay income tax for the next few years, who will?
Two more observations: 1) Conservatives say the best economic stimulus is a tax cut, but as I’ve described, there is a structural limit to what is possible in that direction regarding income tax. Not that deficit-financed government spending binges are any better. 2) Federal income tax is only one portion, often a minor portion, of taxation in America. There is little in the way of deductions and credits for Social Security taxes and sundry excises.
One more thought: If the President and Congress want to spend a lot of money in a hurry in a capacity-enhancing fashion, $100 billion spent to drill 10 million ground loop heat exchangers would be one of the more useful ways to pay people to dig holes in the ground.