Christopher Prandoni

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[This guest post is by Christopher Prandoni, the Federal Affairs Manager for Americans for Tax Reform. It is a response to Myron Ebell’s May 7 post, “A Response to Conservative Defenders of Tax Credits.”]

Americans for Tax Reform asks every candidate running for Congress to sign the Taxpayer Protection Pledge, a promise to their constituents that they will not raise taxes on Americans or their businesses. The Pledge, signed by 235 Members of the House and 41 Senators, reads:

I___ pledge to the taxpayers of the state

Of___ , and to the American people that I will:

ONE, oppose any and all efforts to increase the marginal income tax

rates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions and

credits, unless matched dollar for dollar by further reducing tax rates.

The Pledge is by no means a panacea to America’s tax and spending problems, it is a stopgap which identifies tax increases and looks to prevent them. It is the second clause of Pledge that has caused a limited fuss within the conservative movement and, thus, is worth reexamining. Before we proceed, it is important to make the distinction between two types of tax credits—refundable and nonrefundable—as conflating them can lead to unnecessary confusion. A tax credit is employed to reduce a taxpayer’s tax liability, ie reducing the amount of money they must pay to the government. A refundable tax credit allows the taxpayer to reduce their tax liability below zero, meaning the taxpayer is owed money from the government. The outlay effect caused by refundable tax credits is spending. Americans for Tax Reform has unambiguously opposed outlays resulting from refundable credits. I recommend readers take a look here at which refundable credits trigger these outlay effects.

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