A tax credit to oppose

Tax cuts for business tend to be pro-growth, but it’s not hard to imagine one that would be anti-growth. For example, you could offer a tax cut for refusing to hire more workers. That would be stupid, right? No one would ever do such a thing.

Well, yes, it’s stupid, but that hasn’t kept Democrats from doing exactly that:

Zach Hoffman was confident his small business would qualify for a new tax cut in President Barack Obama’s health care overhaul law. But when he ran the numbers, Hoffman discovered that his office furniture company wouldn’t get any assistance with the $79,200 it pays annually in premiums for its 24 employees. “It leaves you with this feeling of a bait-and-switch,” he said.

When the administration unveiled the small business tax credit earlier this week, officials touted its “broad eligibility” for companies with fewer than 25 workers and average annual wages under $50,000 that provide health coverage. Hoffman’s workers earn an average of $35,000 a year, which makes it all the more difficult to understand why his company didn’t qualify.

Lost in the fine print: The credit drops off sharply once a company gets above 10 workers and $25,000 average annual wages.

A tax credit you lose if you hire more than ten workers, to encourage people to keep their businesses small. Brilliant!

The real problem here is nomenclature. In truth, tax cuts and targeted tax credits are entirely different things. Tax cuts are modifications to general tax policy. Targeted tax credits are government spending concealed in the tax code. It doesn’t even matter if the targeted recipient pays no taxes; usually they make them refundable.

Democrats are putting their payoffs in the tax code more and more often because it sounds better to the public to call them “tax cuts” than “government spending”. We need to stop letting them get away with that.

(Via Hot Air.)

UPDATE: More here. (Via Instapundit.)

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