If you’re a taxpaying American, you’ve probably taken advantage of a tax credit at some point in your life. But how much do you actually know about these small tokens of tax forgiveness, and have you ever stopped to wonder whether they place a much larger role in our political system than you initially realized?
Most of us never stop to think twice about using tax credits to their advantage. After all, who doesn’t want to reduce their debt and pay less money on their taxes? Unfortunately, these tax credits often come with hidden costs that politicians don’t want their constituents to know about. In recent years, tax credits have become something of a campaign bargaining tool used by political opponents to appeal to voters.
Today, we’re looking beyond the obvious appeal of tax credits and examining the true motivation behind these seemingly harmless resources, as well as the long-term impacts of relying on tax credits to reduce tax debt.
What exactly is a tax credit, anyway? In simple terms, a tax credit is an incentive that allows taxpayers to deduct the amount of credit owed from their taxes to the state. Essentially, the government offers you the opportunity to reduce your tax debt by using certain credits to your advantage.
Sounds great, right?
For many Americans, the appeal of tax credits is obvious. Just by choosing certain life paths, you can earn credits towards your taxes, including things like:
Child Tax Credit: Made for families with children below the age of 17.
Lifetime Learning Tax Credit: Incentivized savings for Americans paying for college tuition.
Adoption Credit: Credit given to families who choose to adopt a child in the United States.
Solar Tax Credit: Relief for individuals who take advantage of renewable energy in their homes.
Of course, these are just a few examples of popular tax credits. From starting your own business to donating to charity and reducing your mortgage, it seems like there is a tax credit opportunity for just about anything, making it easier than ever for Americans to save money on their taxes.
Inside The Pandemic Tax Credit Boom
Tax credits have always been a part of the American tax system, but they notably became more popular during the COVID-19 pandemic. As residents were forced to stay home and close their businesses, the U.S. economy began a rapid decline, forcing policymakers to act quickly in creating economic relief strategies.
One of the primary forms of economic relief during this time came from stimulus checks, which also acted as tax credits for Americans who received them. A number of other tax credits also hit the market during this time, including a Health Insurance Premium credit and more than 20 new energy tax credits.
On paper, these tax credits were touted as being a temporary relief package for struggling Americans. Instead, many politicians have campaigned to make these credits a permanent fixture of the economy, stating that many families have come to rely on them to pay their taxes. However, many of these proposals are hiding a greater government spending plan, conveniently disguised as relief for the American people.
Do Tax Credits Really Boost The Economy?
So, do tax credits actually help boost the economy, or are they contributing to the government’s massive spending problem? Certainly, these advantages helped many Americans get back on their feet post-pandemic. That said, many leading economists warn that the growing demand for tax credits will only add to the nearly $34 trillion in debt held by the U.S. government.
In fact, most Americans oppose excessive government spending. That’s why politicians have begun disguising their new spending bills as tax credits, deceiving voters and hiding their true intentions. Along with increasing the deficit, these bills are often packed with a range of other hidden costs that far exceed the benefits of the tax credit itself.
Tax Credits VS. Benefits: What’s The Difference
All of this begs the question: Are tax credits and government benefits different?
According to the Joint Commission on Taxation, a bi-partisan effort to monitor tax policies, the answer is no. Overwhelmingly, new tax credit bills largely resemble direct spending packages in that they provide relief to certain Americans while consuming a non-refundable portion of the government’s budget.
In fact, many of these tax credits directly mirror popular benefit programs like public healthcare, welfare, housing, and energy programs. That’s because the purpose of these tax credits is not just to support taxpayers but to add more funding to programs that may otherwise be downvoted. Simply put, these programs allow policymakers to spend more under the guise of economic relief.
For example, if a lawmaker wants to increase spending on energy programs at the federal level but doesn’t have enough support to make this happen, they may try positioning their offer as a tax cut for Americans who use alternative energy. In actuality, these tax credits give the government the power to spend more money on these expenditures, as well as other expenses, discreetly written into their bill.
What To Expect From New Tax Credit Bills
With this in mind, it’s crucial to understand that not all tax credits are created equal. In the coming years, policymakers are expected to propose a staggering 150 new tax credit bills for their constituents, many of which will lead to a spike in spending and a growth of the already massive debt owed by the government. Many of these new tax credits are designed to incentivize certain industries, like restaurant ownership, teaching, trucking, and other often underserved professions.
As you prepare to tackle your own taxes, be wary of tax credit proposals that seem to overlap with many of the already-funded government programs that Americans rely on. These are often spending bills that have been shrouded by the promise of economic relief.
