from this "independent" source, page 25:
Senator Obama proposes a major expansion in refundable tax creditsthat is, credits available to eligible households even if they have no income tax liability. The refundable portion of Obama's non-healthcare tax credits (the amount in excess of tax liability) would equal $648 billion over ten years. (See http://
www.taxpolicycenter.org/t08-
0191.) The credits would increase the percentage of households that do not owe income tax in 2009 from 38 percent under current law to 48 percent in the proposal. That percentage would decline over time as real incomes (and tax liability) grow.
By budget scorekeeping convention, the refundable portions of tax credits are treated as outlaysthat is, the same as direct spendingrather than as tax reductions. Under current law, outlays on the earned income tax credit and the child tax credit (and several much smaller refundable credits) will total $406 billion from 2009 to 2018; Senator Obama's proposals would thus increase the total to $1,054, or almost 160 percent.
There's an interesting debate about refundable tax credits. On the one hand, some critics argue that "tax cuts are for taxpayers," meaning that refundable tax credits should not be part of the tax cut agenda. The Wall Street Journal editorial page once famously opined that people with incomes too low to owe income tax were "lucky duckies," undeserving of tax relief.
On the other hand, a lot of what we call tax cuts are really spending programs in disguise. Does it really make sense to provide subsidies for health care, homeownership, saving, education, etc., in such a way that the low-income people who most need assistance are automatically disqualified? For that reason, Batchelder, Goldberg, and Orszag (2006) argued that all tax subsidy programs should be converted to refundable credits.
While this debate rages, there seems to be general agreement that refundable credits are the way to go to expand health insurance coverage. President Bush proposed refundable credits several times before switching to his standard deduction for health insurance. Senator McCain's proposal (discussed below) is basically the president's, but provided as a refundable tax credit instead of a deduction. And Senator Obama's subsidy scheme is also fully refundable,and even more targeted at those with low incomes.
