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Taxes: Stimulus plans ahoy
Last year: Thanks to Joe the Plumber, Barack Obama's campaign pledge to restore the top income tax rates to pre-Bush levels got national attention. Yet despite John McCain's warnings that repealing Bush's tax cuts for those earning more than $250,000 a year would "tax half of the income of small businesses in America," it turned out that more than 97% of small business owners - including Joe himself - would see no change in their income taxes as a result. Meanwhile, many Americans took home a one-time tax "give back" though the $600 stimulus checks mailed out by the IRS last spring.

This year: With the economy now officially mired in recession, Obama is likely to hold off on raising the top tax rates until 2010, when the Bush tax cuts are set to expire on their own. Instead, Obama is working on his own stimulus plan, one top adviser David Axelrod has will include "a portion" of the "Making Work Pay" tax credits Obama proposed during his campaign. These credits would provide a rebate of up to $500 per person for employed individuals earning less than $85,000 a year. These would most likely come in the form of a reduction in payroll taxes - to get money into workers' hands as fast as possible - but would only cut employees' contributions, not employers'.

Calls for a broader "payroll tax holiday", as the NFIB has lobbied for, are less likely to find a place in any recovery plan. The problem with a payroll tax break, says Urban Institute economist Bob Williams, is that "you're putting money in the hands of people who are more likely to hang onto it" - a point Obama's new budget chief, Peter Orszag, himself made in arguing against a payroll tax holiday in 2001. -Neil deMause

NEXT: Layoffs and long hours ahead

LAST UPDATE: Jan 06 2009 | 6:06 PM ET
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