The New York Times columnist, Paul Krugman, has been pilloried for months by The Wall Street Journal, among others, because of his two-faced columns on Enron and his questionable economic theories.
On Friday, Krugman took on the "Bush Tax Cut" with the following analysis:
Finally, there's line 47. You haven't heard about that, but you will.
Here's the story. The Bush administration didn't want to give those famous $300 rebate checks; its original plan would have pumped hardly any money into the economy last year. Under prodding from Democrats the plan was changed to incorporate immediate cash outlays. But those outlays were included only grudgingly, and with a catch: they really weren't rebates. Instead, they were merely advances on future tax cuts.
What that means is that most taxpayers, when they reach line 47 of their 1040's, will discover that they owe $300 more in taxes than they expected. In other words, the one piece of the Bush tax cut that probably did help the economy last year is about to be snatched away. The direct monetary impact will be significant; the psychological impact, as taxpayers realize that they've been misled, may be even greater.
Krugman must be getting his advice for filling out a tax form from the IRS help line. In fact, the Treasury Department made a point to issue a special tax information press release for the Times columnist.
Last summer Congress passed, and the President signed into law, a bill that provided immediate tax relief for taxpayers. The bill created a new 10% bracket that did not go into effect until January 1, 2002. In order to give taxpayers the benefit of the new 10% bracket immediately, Advance Payment checks were sent in the maximum amounts of $300 for singles, $500 for head of households, and $600 for married filing jointly.
Line 47 of Form 1040 (line 30 of Form 1040A and line 7 of Form 1040EZ) provides a Rate Reduction Credit for those taxpayers who did not get the maximum benefit from last summer's Advance Payments, and whose 2001 income or tax amounts qualify them for an additional amount.
Contrary to the column's assertion, last summer's checks did not reduce refunds or increase tax bills. In fact, the most recent figures show that the average amount for nearly 23 million refunds processed has actually increased by $232, to $2,210.
Taxpayers who received the maximum Advance Payment for their filing status should leave line 47 blank. The Advance Payment check they received last year is theirs to keep. Period.
Hopefully Krugman has an accountant doing his taxes. If he did them himself, he might end up overpaying. Even after the press release from the Treasury Department, Krugman continues to assert he was right in the first place in a note at the end of today's column.
My Feb. 22 column mentioned "line 47" in this year's 1040. What I said was correct, but has been subject to misinterpretation, most of it innocent, some of it deliberate. Let me say it another way: Most people think that they received both a rebate and a tax cut. But the rebate was only an advance on the tax cut; it must be counted against the refund you would otherwise receive. Hundreds of thousands of early filers have already gotten this wrong. The effect is to give many people a rude shock, which is not what this economy needs.
I knew last year that the $300 was "an advance on the tax cut," my father, the wise, (very) old and infirm former tax preparer informed me of this early on. Krugman's problem was due to the fact that he was in such a lather to bash Bush, that he got a little sloppy with his words. Don't listen to Krugman when it comes to how to fill out your tax returns. If you listen to him, many more taxpayers will get a visit from the tax man.