MILSTEAD: You recall the '01 tax 'rebate' checks?

By David Milstead, Rocky Mountain News (Contact)

Wednesday, January 23, 2008

There's plenty to be said about our government's response to the current economic travails, with a goofy one-time cash payment representing the "big idea" in place of more substantial economic reforms.

I will not say it, however, since plenty of ink, bytes and air already have been expended on such commentary. Instead, I want to get micro with you and return to one of my favorite topics in my time at the Rocky Mountain News.

Already, we are calling the Bush administration plan to give households $800 to $1,200 in cash a "tax rebate," much as the smaller 2001 checks were described.

That was a misnomer. The summer 2001 "rebate" checks were not a rebate of taxes paid the previous April, as many thought. Instead, they were an advance on the refund taxpayers were going to get in April 2002.

That meant refunds in April 2002 were $300 smaller than they would have been without the summer 2001 checks. And those who owed taxes faced a tax bill $300 higher.

That's the conclusion I came to after multiple talks with the Internal Revenue Service, which had been careful not to use the word "rebate" in any of its official documents.

IRS officials gamely answered my questions and showed me how the mechanics of the rebate worked. The resulting story moved on the national wires - and the Treasury Department public-relations staff let me know they disliked my interpretation of the matter.

As you may recall, the checks were part of a major tax-cutting effort in the first year of the Bush administration.

Part of those tax cuts was a reduction in rates, including a drop from 15 percent to 10 percent on the first $6,000 of income for singles and $12,000 for married taxpayers filing jointly.

That equaled a cut of $300 and $600. But instead of implementing the cut in the tax tables that accompanied the 2001 1040s in April 2002, Congress and the Bush administration sent out the checks early, then delayed changing the rates until the tables in the April 2003 1040s.

The forms for the 2001 tax year could have included a line at the end of the 1040 for taxpayers to take the amount of the check and reduce their refunds - or add the figure to the amount owed. But the IRS didn't do that, wanting to reduce the number of calculations necessary.

A good thing, too, for the politicians who were happy to make their constituents think they were getting a rebate, not an advance refund.

To pull off the same trick in 2008, there will have to be a similar income tax cut that can be "advanced" in lieu of an actual rebate. Then, taxpayers can again be misled as to what those checks really mean.

David Milstead and James Paton take turns writing Up and Down 17th Street. Contact Milstead at 303-954-2648 or milstead@RockyMountainNews.com.

• January 23, 2008

  6:33 a.m.

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  italiaboy9 writes:

  I feel like writing "Return to Sender" on mine. Thanks Georgie for another great and effective way to handle our impending financial failure. :D

• January 23, 2008

  10:12 a.m.

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  BeachNut writes:

  thanks for clarifying what i had suspected. it's like somebody else taking your credit card to "give" you a cash advance...for which you'll get the bill (plus interest), of course....

• January 23, 2008

  11:16 a.m.

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  Froward69 writes:

  all hale president Hoover, I mean Bush...

  Brace yourselves, the worst is yet to come...

• January 23, 2008

  11:25 a.m.

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  SASQUATCH writes:

  Rebates and give-aways don't work. The money is frequently banked and ultimately comes out of someone else's pocket. For every one that is stimulated, there is an equal amout of unstimulated or negatively stimulated. Its like taking a bucket full of water from the deep end of the pool and then pouring it into the shallow end; hoping that the level of the water in the pool rises.

  Cuts in marginal tax rates, in contrast, change economic behavior and stimulate entrepeneurship. This bouys economic growth, creates jobs and grows incomes. We get more GDP growth with tax cuts; not just a bucket of water taken from the deep end of the pool and then dumped into the shallow end. Nothing happens. The same positive things can be said for a business investment tax credit, ITC, that permits a faster writeoff of plant and equipment and reduces the cost of business capital which then stimulates growth, expansion, new jobs and more income.

  The give-away program failed when Bush tried it in 2001; he was then forced to go back to the drawing board and create a real stimulative package that really worked.

  What will I do with my $800? I plan to buy a few LOTTO tickets.

• January 25, 2008

  1:43 p.m.

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  Lori writes:

  Thanks for a great expose. I quoted you on my blog at

  http://weebleswobblog.blogspot.com/20...