16

For example, Republicans are for tax cuts, and Democrats are against them. On the other hand, Democrats are for stimulus checks and Republicans against.

But the net effect of both seems to be the same, namely, a higher deficit and more money in people's pockets.

So what's the difference and why do the parties come out opposites on it?

8
  • 16
    I think you will need to provide more support for your claim that Democrats are anti-tax cuts or even that Republicans are anti-stimulus check (since Trump himself is a notable proponent of them). But at first blush, the "net effects" are quite different - cuts are ongoing while check are one time (or a specified number of times), cuts benefit the wealthy the most (since percentages scale) while checks are "one size fits all" (though some tailoring with tax-brackets can limit some of this), and checks are immediate, while cuts might not take meaningful effect for months. – cpcodes Dec 29 '20 at 18:40
  • 9
    All of which is to say that many of the assumptions in your question seem to be incorrect. – cpcodes Dec 29 '20 at 18:40
  • @cpcodes Are tax breaks ongoing? – Jontia Dec 29 '20 at 18:45
  • @Jontia They are until they expire. There are, of course, exceptions. You could always define a tax-cut to have a maximum benefit (like an IRA or a 401-k) and set super short expirations (one month!), but if you have to make a bevvy of exceptions to a tax cut to make it work like a payment, then why not just do a payment? Similarly, you can make payments more like tax cuts by making them monthly and tying their value to some variable (like income), but in both cases, the overhead of implementing all of those exceptions to the default nature makes it inefficient over the alternative. – cpcodes Dec 29 '20 at 19:08
  • 3
    Not everyone pays taxes. Nor is everyone is required to file taxes, and indeed the people that don't/aren't are the people most likely to need a stimulus payment. – Jared Smith Dec 30 '20 at 11:41
39

Discounting the surrounding flora, your question seems to be fairly clear: what's the difference between tax breaks and stimulus checks? (It becomes less clear when introducing the word "philosophical," but let's give it a try.)

If the tax breaks are provided for the same time frame and specifically targeted to the identical people, as the stimulus checks, there may be very little difference. In such a case the main differences would be practical and administrative.

But tax measures rarely target the same people as direct payments, and advocates rarely want tax breaks to be for a limited time.

Direct payments may reach people who are not immediately visible to the tax system because, for example, they may have been stay-at-home parents who are not required to file a return.

"Philosophically" there are also different schools of thought in economics on this subject with some making the case that direct payments are always better than tax measures because direct payments are unambiguous in their costs.

This school would do away with all "tax breaks" and convert them into direct payments fully visible to all taxpayers. So for example, in stead of getting a subsidy through tax breaks to build certain cars, the manufacturer would duly receive a government cheque. This school not only makes the case that it is much easier for taxpayers to fully understand the costs of direct payments, but they also avoid clever tricks to manipulate tax provisions in ways they were not intended.

On the other hand there are those who believe using tax breaks is a superior approach because not collecting the dollar in the first place means the government doesn't have to do all the accounting and administration associated with collecting a dollar that is simply going to be returned.

There is a current that also believes tax breaks serve a greater philosophical purpose in "starving" government of money. Their real objective is to shrink the range of options available to all governments because they fundamentally believe government is a bad thing that needs to be squeezed to its barest necessity.

These are just some of the considerations in your question and I don't want to suggest that it is a complete consideration. If you have further specific questions I'm happy to try to answer them.

6
  • 10
    There is also the distinction between refundable and non-refundable tax credits. Some Americans may have so little income that a non-refundable tax credit is worthless to them. Of course, this applies to deductions generally as well. – Kevin Dec 29 '20 at 20:52
  • Why would a stay-at-home parent not be required to file a tax return? – phoog Dec 30 '20 at 14:35
  • 7
    @phoog If they have under $12,400 income for that year then no need to file. Since many stay-at-home parents don't have remunerative jobs then they could be under that limit. – user3067860 Dec 30 '20 at 15:44
  • "There is a current that also believes tax breaks serve a greater philiosophical purpose in "starving" government of money. Their real objective is to shrink the range of options available to all governments because they fundamentally believe government is a bad thing that needs to be squeezed to its barest necessity." Wouldn't direct payments do the same thing? – PyRulez Dec 31 '20 at 2:30
  • 3
    @PyRulez: No, not quite - it would result in the same amount of disposable money for the government, but since proponents want to limit the government's role, not collecting money in the first place (tax cut) is seen as better than collecting and later returning (tax + stimulus check). – sleske Jan 1 at 13:07
37

The big practical difference is that stimulus checks can reach people who don't pay taxes.

Many of the poorest people in the country don't pay taxes: they qualify for enough tax credits, adjustments, and other exemptions to bring their taxable income to $0. A tax break wouldn't benefit these people, because they already aren't paying anything. A direct payment*, on the other hand, can.

*Technically, the stimulus checks aren't direct payments. They're "advance payments of a refundable tax credit", a type of tax credit which, if it reduces your tax owed below zero, results in the government paying you.

4
  • Proponents of tax breaks would point out that a tax break indirectly affects the entire economy - keeping businesses afloat and creating jobs (or preventing the loss of jobs). Though in practical terms, that doesn't always happen - but that is the concept. – Zibbobz Dec 30 '20 at 14:00
  • 13
    @Zibbobz Proponents of direct payment would say the same, people (especially the people who needed it in the first place) don't put their direct payment under the mattress, they spend it on food, housing, etc., which goes into the local economy. – user3067860 Dec 30 '20 at 15:51
  • 2
    @Zibbobz Proponents of tax breaks always say that, but in reality what usually happens is that the businesses use those trillion-dollar tax breaks to buy back stock, which does little for the economy but put more money into the pockets of the already wealthy. – Shadur Jan 1 at 13:07
  • Tax cuts typically also require effort on the part of the receiver to become effective, i.e. you need to claim them in your tax declaration. You typically need to know about them (unless with tax systems where they can be auto-deducted). So chances are that a) not everyone actually gets them due to unawareness/mistakes etc. and b) they come at a time effort cost while direct payments can be easier to implement as an automatism. – Frank Hopkins Jan 1 at 16:12
15

But the net effect of both seems to be the same, namely, a higher deficit and more money in people's pockets.

The important thing about tax rates is not how much they are, but who is paying.

Republicans are for tax cuts for the wealthy. They tend to support a flat tax, and oppose progressive taxes. Since progressive taxes tax the wealthy disproportionately, making taxes less progressive benefits the wealthy disproportionately. Democrats frame this as Republicans serving the interests of the wealthy, while Republicans frame this as simply making taxes fair. Which framing is a better description is a matter of opinion, but the point remains that Republicans don't necessarily support every plan that reduces taxes, and Democrats don't oppose every such plan.

Stimulus checks are extremely progressive: they are phased out as one makes more money, and even if they weren't, a $1000 decrease in taxes is going to have a much larger effect on the tax rate of a poor person than a rich one. In addition, they are refundable tax credits, which means that they can bring one's taxes below zero, which tax cuts can't.

The hand-out versus tax break framing is a large issue as well. Even if they were to have the same effect, "government hand-outs" are going to look to conservatives like people getting something they didn't earn, while a tax cut is people keeping more of what they did earn. The Democrats do, however, often refer to tax breaks for corporations or the wealthy as a "hand-out".

20
  • 3
    This is incorrect. Republicans generally support tax cuts for everyone. (There are of course exceptions, including the person occupying the White House for a few more weeks :-() Democrats (generally, again) support tax increases for everyone, though they like to make them progressive, on the Robin Hood principle. (That is, you take from the rich because they're the ones with the money.) – jamesqf Dec 30 '20 at 4:16
  • 5
    @jamesqf Trump is an exception? So the Bush tax cuts didn't disproportionately benefit the rich? – Acccumulation Dec 30 '20 at 4:19
  • 5
    I think jamesqf is talking about "most republicans", while Accumulation is talking about "most republicans in power" – BlueRaja - Danny Pflughoeft Dec 30 '20 at 6:43
  • 7
    @jamesqf some people pay no income tax. The Republican party can't be in favor of tax cuts for those people because their income taxes can't be cut. – phoog Dec 30 '20 at 14:37
  • 4
    @computercarguy: First, that is simply not true. (Do try to get your information from sources a little less biased than Mother Jones :-)) Second, one reason Republicans (again, in general) want more tax cuts for the rich is because the rich (however you define rich) have historically carried a disproportionately higher share of the tax burden. The top 1% pay over 1/3 of income tax: kiplinger.com/article/taxes/… – jamesqf Dec 30 '20 at 19:38
12

It is a very much philosophical difference, because, depending on the specifics, they are both the same.

The big differences are:

Whom do they benefit?

Very often tax breaks are cut out to benefit the wealthy. They don't have to, but often they do. That is especially true if the tax break is in some form progressive (e.g. cut x% of the tax, or if it is a fixed amount that is deducted before tax in a progressive system). It is also true if it is a non-refundable tax break, because those who pay no taxes don't benefit from them.

Stimulus checks, if distributed to everyone equally, usually benefit the poor more, because €1000 extra might double a poor person's monthly income, while a wealthy person might not even notice it.

When are they paid?

Generally speaking, a tax break is paid after the fact (e.g. at the end of the year) while stimulus checks are paid in advance. Again, since tax breaks are paid after the fact, they are less helpful for the poor, since they might not have enough money to wait until the end of the year.

How often do they get dispensed?

Tax breaks tend to be a regular thing, while stimulus checks are usually one-time payments.

That said...

... it is totally possible for either of those to be used for the opposite purpose. E.g. in Austria we had a so-called Family Tax Break which would give families a €1000 refundable tax break that is paid directly when you get your wages or alternatively (if you don't get wages) at the end of the year. Also, this was limited to one year.

So it primarily benefited the poor, was paid not quite in advance but in a timely manner, and was a one-time payment. So it's closer to the spirit of a stimulus check, even though it was a tax break.

On the other hand, stimulus checks can also be tied to requirements, which then only benefit a certain segment of the population, e.g. business owners. So they don't necessarily have to help poor people either.

1
  • This answer misses the critical difference noted by others: tax breaks do not reduce liability below zero, while tax credits can. – Lawnmower Man Dec 31 '20 at 1:11
1

From a philosophical perspective there is a big difference.

The conservative position favoring lower taxes is more a consequence of their lower level platform that prefers a limited role for Government. Under this philosophy letting the taxpayer keep their money instead of re-distributing it through the Government is preferable. They would also bristle at the idea of equivalency between reducing taxes and entitlement programs like such as stimulus checks, because the underlying assumption that reducing taxes take away money from the Government. They would argue that position assumes that letting an individual keep their earnings is somehow an entitlement to the taxpayer. (e.g. "Merry Christmas, your gift is that I didn't ask you for money this year!"). This position prioritizes freedom over security/equality.

The progressive philosophy is more agreeable to the concept of income redistribution to achieve the goal of improving economic equality and security. As other answers have noted, tax cuts are a far less direct, and often less equitable way to put resources in the pockets of individuals. In general, increasing entitlements is very much aligned with the left-leaning platform.

2
  • This answer neglects to account for Monetary Theory, i.e. how money is created in the first place. We might imagine a state with a powerful goverment that had so perfected its monetary system so that it levied no taxes whatsoever, but substituted its exclusive power to coin money as needed, but so perfectly done that the coinage produced none of unpopular macroeconomic side effects historically associated with (comparatively reckless) coinage. Conservatives living in such a state would be unable to "starve the beast" by the methods given in this answer. – agc Jan 4 at 3:31
  • I'm only speaking to what the philosophy of the parties are, not the merits of either of them. – JohnFx Jan 4 at 14:28
0

In the last round of stimulus check / tax breaks as a resident alien I didnt get the Bush stimulus check, but I did get the Obama tax break.

I doubt that many politicians have thought it through that far, but that is one of the differences.

-2

Really it is nothing but politics and economic manipulation. It all comes out of the "tax base" which never gets smaller. They play games with the overall income tax rate, deductions, and dollar for dollar exclusions but it is really a fiction. John J.D.

-6

The philosophical difference comes from the practical difference, which is that a tax cut simply lets individuals keep more of their own money, while many people will get more in "stimulus" checks than they actually paid in taxes.

8
  • You just rephrased the question. But the last bit is relevant: "many people will get more in "stimulus" checks than they actually paid in taxes." <- You should have deleted everything else, then expanded this part. – user253751 Dec 30 '20 at 14:20
  • @user253751: If just restating the question is the answer, then why bother to ask it? Other than the fact that some people seem not to be able to see the obvious, witness all the other answers to date, which use a lot more words to say essentially the same thing. – jamesqf Dec 30 '20 at 17:10
  • The last part is not a restatement of the question. The first part is. – user253751 Dec 30 '20 at 18:16
  • This isn't true. Due to the tax cuts in 2018, large corporations are not only paying zero federal taxes, they are also getting refunds. They aren't just keeping they money they earned, they are getting money other people earned. businessinsider.com/… – computercarguy Dec 30 '20 at 19:39
  • 1
    @jamesqf, yet it also talks about "tax breaks" and "tax cuts", which corporations have been getting quite a bit of in the past several years, including all kinds of help during this pandemic and this latest Bill. The "comparison" you talk about is inconsequential. The body of the Question doesn't even mention the stimulus check. Not to mention that there was plenty of corporate stimulus checks in the form of the Paycheck Protection Program. You are splitting the wrong hairs. – computercarguy Jan 2 at 18:32

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .