A “Turkey of a Tax Bill” That Could Be Back on the Table

December 1, 2014

Well, I said I expected there’d be a lot to piss me off. But I didn’t expect anything new of that sort before Thanksgiving Day. Nor did I expect the Senate’s Democratic leadership to actively contribute.

But here we are with reliable reports that about-to-be-former Senate Majority Leader Harry Reid, some of his colleagues and House Republicans were close to a deal that would, among other things, make 10 of the nominally temporary tax breaks (the so-called tax extenders) permanent law.

The costliest — the research and experimentation tax credit — would become more generous, reflecting changes the House had already passed. So would several other pieces of the package.

But the improvements the Recovery Act made in the Earned Income Tax Credit and the Child Tax Credit would be left to die in 2017, pushing some 16.4 million people into poverty — or deeper poverty.

Several White House spokespersons told the press that the President would veto the package because, said one, “it would provide permanent tax breaks to well-connected corporations while neglecting working families.”

Capitol Hill staffers reportedly say that queered the deal — at least, for now. But I rather doubt Congressional Republicans and Democratic collaborators will altogether give up on the deal-making.

The “turkey of a tax bill,” as the Coalition on Human Needs called it, would still be a turkey, even if the negotiators decided to placate the President and some high-ranking Democratic objectors by folding in the missing refundable tax credits. Doesn’t seem likely now, but just suppose.

Here are three big, related things that should set off alarm bells.

Revenue Losses. The package that the dealmakers had all but completed would have cost $409 billion over the first 10 years, according to Center on Budge and Policy Priority estimates. Citizens for Tax Justice pegs the cost at $450 billion.

But the cost would actually have been roughly $530 billion, once you tack on the additional interest the federal government would have had to pay because it would have had to borrow more.

All big costs — and all because the dealmakers decided not to offset the tax cuts with any revenue-raisers, spending cuts or some combination of the two. Think how some of that money could be used to shore up under-funded programs that serve the needs of poor and near-poor people.

Fodder for the Spending Slashers. Needless to say (I hope), such large revenue losses would drive up the deficit, if Congress did nothing to curb federal spending more than it already has.

But you can bet that Republicans, who had no problem with the unpaid-for tax cuts, would swiftly revert to insisting on additional, drastic federal spending cuts (except for defense) in order to balance the budget.

The rising deficit — and hence the debt — was one of Congressman Paul Ryan’s primary justifications for his budget plans. They proposed large funding cuts for safety-net programs and others that benefit low-income individuals and families, e.g., Pell grants.

They blew away the Social Services Block Grant and, of course, the Affordable Care Act, thus also the subsidies that enable low and moderate-income people to purchase affordable health insurance. They took stabs at Medicare and Social Security benefits.

So we can expect Republicans to turn the revenues they’d cheerfully forfeited, without a peep about the deficit, into more urgent reasons to slash social programs.

Thoroughgoing Tax Reform Preempted. As you know, Republicans and Democrats, from far-right to far-left, agree that the tax code is ripe for reform.

Differences notwithstanding, they apparently envision a clean-out of a whole lot of special interest and overlapping credits, deductions, deferrals, etc., with at least some of the savings used to offset the cost of other changes, e.g., a lower corporate tax rate. (Whether to use some or all is one of those differences.)

As I said, the “turkey” bill would have made 10 of the extenders permanent in advance of such reform — and without offsetting the revenues lost. This would lower the revenue baseline, i.e., the projected revenues the federal government will collect under current law.

So Congress would effectively get more than $400 billion to use for lowering tax rates and/or preserving some of those dubious special-interest tax breaks without having to find offsets.

A reform plan could thus qualify as revenue-neutral, i.e., one that neither raised nor decreased total revenues collected, only because the extender finesse had already decreased revenues.

For the end result, return to the previous section. And watch what happens after Congress does a last-minute, short-term extender save.

 


Major Anti-Poverty Measures at Risk and Could Be Better

October 20, 2014

Last week’s Supplemental Poverty Measure report confirmed at least one thing we already knew. The refundable tax credits lift more people out of poverty than any other major public benefit, except Social Security.

The more powerful of the tax credits — the Earned Income Tax Credit — boosted 6.2 million people, including 3.2 million children over the poverty threshold in 2013, according to the Center on Budget and Policy Priorities.

The Child Tax Credit did the same for 3.1 million people, including 1.7 million children, again per CBPP.

These tax credits have enjoyed broad bipartisan support, as well they might. The EITC in particular is said to serve as an incentive to work, for which there is some evidence. And who would  stand against help for working parents raising children?

We now have the germs of a bipartisan consensus on certain improvements to both. For example, both some leading Democrats and the Senate and Congressman Paul Ryan have proposed making more childless workers eligible for the EITC and increasing the credit for them.

Senators Marco Rubio and Mike Lee say they have a proposal that will, among other things, raise the Child Tax Credit, end the phase-out and make the credit refundable against payroll, as well as income tax liabilities. Fine print as yet to be seen.

And fine print could make a very big difference to low-income families — as well as some immigrant families, even if not low-income — as the now-passed House child tax reform bill shows.

Into the dialogue, if we can call it that, comes the Center for American Progress, with a set of recommendations — some already proposed by others, some new. Here’s a somewhat selective — and occasionally elaborated — summary.

Keep the Improvements We Have

First and foremost, CAP says, Congress should make the Recovery Act’s improvements in both the EITC and the CTC permanent law. Both are due to expire at the end of 2017. And thus far, Republicans in Congress have shown no inclination to extend them.

For the EITC, no extension would mean a reversion to a more severe “marriage penalty,” i.e., a lower credit (or no credit) for some workers who marry. It would also mean a stingier credit for families with three or more children.

For the CTC, no extension would mean no credit at all for very low-income working families. The current $3,000 threshold for claiming the credit would revert to what’s in the permanent law, with all the annual upward adjustments since 2001 — thus a threshold estimated at $14,700 for 2018.

And for those clearing the threshold, the refunds would shrink because they’re based on a percent of income over the threshold, up to $1,000 per child.

About 1.8 million people, including a million children would fall into poverty, CBPP warns. Far more would fall deeper into poverty — 14.6 million, including 6.7 million children.

Expand Eligibility for the EITC

CAP takes note of the disadvantages the EITC poses for childless workers — and for workers whose children haven’t lived with them for more than half the year. They’re actually at a double disadvantage, it says, because some research suggests that employers take account of the EITC in setting wage rates.

It endorses, in general terms, an expanded credit for them. Also a lower age for eligibility. But instead of the commonly-mentioned 21, it favors 18, provided that the workers’ parents don’t claim them as dependents.

Boost Child Tax Credit Refunds

CAP wants the CTC to become fully refundable, as the EITC already is. Families would then receive refunds for the total amount that the credit, plus whatever other credits and deductions they can claim reduce their tax liability to less than zero.

It also recommends indexing the credit to keep pace with inflation. This would achieve somewhat the same results as the already-indexed provisions of the EITC do.

But the CTC would still have the same $3,000 threshold, whereas workers can claim the EITC, no matter how little they earn. The Tax Policy Center has recommended eliminating the threshold, a reform also advocated by others.

Change Other Policies to Promote Financial Stability and Upward Mobility

CAP has several recommendations to make it easier — and more attractive — for workers to save at least part of their EITC refunds. Several others would make it easier — and less costly — for workers to improve their earning prospects by getting a college education or job training.

All but one of these reaches beyond the EITC itself. And none can be properly summarized in a paragraph or two. Those interested can find the asset-building recommendations here and the education recommendations here.

CAP does, however, have a financial stability proposal strictly for the EITC — a partial early refund. Workers could initially receive up to $500 of the refund they were already eligible for during the second half of the tax year — more in later years because the limit would rise with the inflation rate.

This, CAP says, would help them pay for unusual expenses, e.g., a car repair, moving costs, without resorting to payday loans or the newer, equally extortionate auto title loans.

An estimated 21% of eligible workers don’t claim the EITC. Various reasons for this, including the complexities of filing. Perhaps more would if the “rainy day fund” proposal, as Generation Progress calls it, were adopted.

But if Congress has to pick and choose, then I think it should give top priority to making the temporary improvements permanent — and to giving childless workers a fair shake.

 


Nothing Friendly to Low-Income Families in House Republicans’ Child Tax Credit Reform

July 2, 2014

Republicans on the House Ways and Means Committee took another step in their piecemeal approach to tax reform last week. The focus this time was the individual tax code — specifically, the Child Tax Credit.

No big surprise here, I suppose. We know Republicans have decided they need to show they care about the interests of working families. And what could be more family friendly than a more generous Child Tax Credit?

For better-off families, the Ways and Means bill surely is that. But for low-income families, nothing of the sort. Some millions, in fact, could no longer claim it at all.

What Is the Child Tax Credit?

Like the Earned Income Tax Credit, the Child Tax Credit reduces federal tax liabilities for filers who claim it. In the case of the CTC, those eligible are parents with dependent children under the age of 17. Each of the kids is worth a credit of up to $1,000.

Also like the EITC, the CTC phases in and then out. However, anyone with earned income can claim the EITC. For the CTC, the phase-in currently begins at $3,000.

This threshold isn’t permanent law. It was set by the Recovery Act and extended through 2017 as part of the fiscal cliff deal. Without the extension, the threshold would have been about $13,300 last year — and higher this year because the permanent law provides for an annual adjustment to reflect inflation.

The income level at which the phase-out begins depends on whether the filer is a single parent or married — and if married, whether filing jointly or separately.

The phase-out threshold for a single parent is more than twice the threshold for a married couple filing jointly — $75,000, as compared to $110,000. The threshold for a married person filing separately is simply half the joint filer threshold.

The fact that the threshold for a married couple is less than double the threshold for two single parents is sometimes referred to as a marriage penalty. The penalty here, i.e., the ability to claim the full credit, kicks in only when a single working parent marries — and obviously not always then.

Unlike the EITC thresholds, the CTC phase-out thresholds aren’t indexed to keep pace with inflation. But they’re considerably higher. For example, a married couple becomes ineligible for the EITC when its income is less than half the phase-out threshold for the jointly-filing couple claiming the CTC.

What Does the Ways and Means Bill Do?

The bill House Ways and Means Republicans passed would eliminate the so-called marriage penalty by raising the phase-out threshold for married couples filing jointly to twice the threshold for single parents — $150,000.

The higher threshold would be indexed to inflation, as would the threshold for single parents. The maximum $1,000 per child credit would also increase with the inflation rate.

The maximum credit boosts would, of course, benefit only families with earnings high enough to qualify for the full credit. Many already don’t. In 2011, 23% of children with working parents received only a partial credit, according to a Tax Policy Center brief.

These changes would all become permanent law — at an estimated cost of nearly $115 billion over the first 10 years. Again, no offset, since tax breaks seem to have a privileged status.

But not altogether. The CTC improvements initiated by the Recovery Act would be left to expire. So the threshold set in permanent law would kick in at the end of 2017, with all the inflation adjustments since it was temporarily superseded. And that qualifying threshold will rise — and rise — because there will be ongoing annual adjustments.

How Would the Bill Affect Low-Income Families?

As of 2018, families earning less than about $14,500 wouldn’t qualify for the CTC at all, according to the Center on Budget and Policy Priorities’ analysis of the bill.

A single mother with two children and that $14,500 a year income would lose $1,750. Parents with somewhat higher incomes would lose as well, since their credits would, as now, be calculated on the basis of how much they made over the threshold.

At the same time, a married couple with two children and a joint income at the new phase-out threshold would gain $2,200. And families with considerably higher incomes would still qualify for a partial credit.

Looking forward to 2023, the Tax Policy Center projects that more than two-thirds of the credit, in dollars, would benefit families in the top two-fifths of the income scale.

The refundable Child Tax Credit lifted about 3 million people — more than half of them children — above the poverty threshold in 2012, according to another CBPP analysis.

Without the Recovery Act improvements, roughly 900,000 more people would have been officially poor. This, as I’ve often remarked, is very poor indeed.

One can understand then why no Democrats on the Ways and Means Committee voted in favor of the misnamed Child Tax Credit Improvement Act.

Improvements friendly to better-off families, for sure. But as in the past, Republicans don’t extend their friendliness to families at the bottom of the income scale — not even those who work.

UPDATE: The House Rules Committee added a provision to this bill that would deny the CTC to parents who file using an Individual Tax Identification Number, rather than a Social Security number. These are mostly immigrants. According to recent estimates, about 5.5 million children would lose the credit. All but about a million are U.S. citizens.

 


DC Fitness Club Owners Again Up in Arms Over Sales Tax Expansion

June 16, 2014

Once upon a time, not so long ago, the District of Columbia faced a severe revenue shortfall. Balancing the budget — as the District, like virtually all states must — required deep program cuts, unless laws were modified to collect more taxes.

The DC Fiscal Policy Institute and allies recommended, among other things, an expansion of the sales tax to at least some of the services that were perplexingly exempt — fur storage, for example, and homes-away-from-home for fur-bearing pets.

Word got out that the DC Council just might tax some of the exempt services. And next thing you knew, Councilmembers were barraged with e-mails from people who worked out at gyms and/or took for-fee yoga lessons — these orchestrated by the business owners, of course.

For this, as well as other reasons, the Council decided to increase the sales tax rate, but leave services alone.

Now we’re being treated to another round of outrage because a Council majority has voted to apply the sales tax to “health clubs,” as well as five other types of services.

This time, the sales tax expansion would partly offset revenues the District would lose by adopting other recommendations made by the Tax Revision Commission.

Most of these would cut personal income tax liabilities for low and moderate-income filers. But there’d also be a reduction in business franchise taxes — presumably a boon to the unhappy fitness club owners.

Clearly, the tax cuts must be offset. Otherwise, the District would be left with many, many millions less for essential programs and services.

And clearly, the fitness club members will have considerably more money in their pockets to pay the 5.75% tax on their dues — on average, $36.33 a month for those with adjusted gross incomes in the $50,000-$70,000 range, according to Council Chairman Phil Mendelson.

What’s now a $70 a month gym membership would cost an extra $4.01 — less than the cost of two short lattes at Starbucks.

But, says the Yoga Alliance, the District would be “taxing essential healthcare.” A “wellness tax,” one of the several petitions calls it. This makes about as much sense as saying that the sales tax on my daily newspaper is a tax on literacy — or informed citizenship, if you prefer.

We’re asked to worry especially about lower-income residents — people “on the fringe,” as one fitness club owner calls them.

Those folks over in the east part of the city have “ZERO full-service gyms,” exclaims another petition. And the smaller operations there “don’t need another reason to have fewer customers,” especially when obesity and diabetes rates are higher in low-income areas.

Might this have something to do with the fact that many who live there can’t afford a healthful diet, let alone a health club membership? Is there no way to get exercise except at a members-only gym or in a yoga class?

The so-called yoga tax will bring in an estimated $5 million in the first year it’s effective. Where will that $5 million come from if the fitness club folks get their way — or the additional millions in years to come?

From the “record [revenue] surpluses,” Councilmember Jack Evans says — as if we don’t have better uses for the money, e.g., affordable housing for homeless residents. As if the latest recession is the last we’ll ever have.

But it won’t be. Sooner or later, the mayor and the Council will again have a tough time balancing the budget. As always, programs that serve the needs of low-income residents will be especially vulnerable.

So, says Citizens for Tax Justice, will businesses whose goods and services aren’t exempt from the sales tax — and, of course, their customers. But there will be “less pressure to jack up the sales tax rate” if the base is broadened now.

In other words, giving the fitness club owners a free pass will shift the burden to other business owners — and to residents who’ve got no choice but to buy certain taxable items, e.g., toilet paper, soap, diapers.

All this said, I understand how the health club owners could feel picked on. As I said, their services are one of only six types the Council’s plan would tax.

The group seems to me oddly arbitrary — carpet cleaning, home water delivery, car washes, billiards parlors and bowling alleys, storage locker rentals, plus tanning studios, which are lumped together with health clubs.

An expert retained by the Tax Revision Commission identified these — apparently because he thought they’d be difficult for residents to purchase untaxed. But he also recommended two the Council will leave tax-exempt, unless the package changes before the final vote.

Notwithstanding the rationale, I find the choices over-selective. People who have to store their belongings because they’ve lost their homes will pay the sales tax. People who store their fur coats still won’t.

People who have their cars washed will pay the sales tax. People who have their dogs washed still won’t. People who go bowling will pay the sales tax. People who go to the ballet still won’t.

Merely examples from a list that’s perhaps a bit outdated, but still fairly accurate. There are more than eighty tax-exempt services on it.

Seems to me the better approach would have been to begin with the presumption that services would be taxed and then selectively exempt those for which there’s a compelling reason. Health club memberships wouldn’t qualify in my book, but bona fide healthcare would.

 

 


Double Standard in Congress: No Offsets for Tax Breaks, But a Must for Unemployment Benefits

May 8, 2014

Seems Congress is about to engage in one of its periodic bipartisan rituals — a retroactive extension of targeted tax breaks, each of which is near and dear to the heart of at least one member and his/her influential constituents.

Near and dear to the hearts of many constituents is an extension of Emergency Unemployment Compensation. After months of blustering and filibustering, the Senate has passed a foreshortened EUC extension — only five months, back-dated to January 1.

The main reason it’s short is that Republicans insisted that the costs be offset. Now will they — and Democrats as well — apply the same principle to the so-called extenders?

Apparently not, unless something remarkable happens. The Senate Finance Committee has already approved an extension package. It will cost $85.3 billion over 11 years (2014-24), counting offsets worth about 1% of that. About 90% of the total will reportedly benefit businesses, especially large corporations.

The Republican House Ways and Means majority has gone further. Its initial package of bills would make some of the biggest corporate tax breaks permanent — and boost the biggest. Revenue losses over the first 11 years total about $310 billion. No offset.

What Are the Extenders?

The extenders are only a subset of exclusions, credits, deductions and the like in the federal tax code. What distinguishes them is that they expire every couple of years. At least, they have up until now.

The most familiar, I suppose, is the tax credit corporations can claim for research and experimentation (formerly research and development). It will cost $155.5 billion over the 11-year period, if increased and taken out of the extender category, as House Ways and Means Republicans intend.

This worthy investment in our private, for-profit sector can subsidize such socially beneficial activities as the development of new packaging for a fast food product, according to a Center for Tax Justice brief.

Less known, but very important to Kentucky Senator Mitch McConnell is the Equine Equity Act — not a civil rights law for horses, as the title suggests, but a pair of provisions that allow racehorse owners to write off a hefty portion of their costs.

NASCAR race track and restaurant owners get speedier write-offs than less advantaged businesses, as do businesses on Indian reservations, including those engaged in coal production.

Puerto Rican rum producers have a tax credit all their own. So do film and TV producers. Also investors in certain small business start-ups, who can sell their stock after five years without paying any capital gains tax.

And there are two highly-technical extenders that enable multinational corporations to defer federal taxes for as long as they choose. I’ll leave it to the Center for American Progress to explain.

Will merely note that they’ll cost about $8 billion a year, according to Americans for Tax Fairness and its coalition partners. They’re among the provisions House Ways and Means would make permanent.

Not all the tax breaks are for businesses, however.

Teachers, for example, may take an above-the-line deduction, i.e., subtract from their gross income, what they pay out of pocket for books and supplies they buy for classroom use — a sad commentary on the state of public education funding.

There’s also an above-the-line deduction that low and moderate-income taxpayers may take for higher education and certain related fees.

Homeowners can deduct what they pay not only for interest on their mortgage, but for the mortgage insurance lenders generally require.

Taxpayers can deduct what they’ve paid in state and local sales taxes instead of deducting their state income tax payments — a boon to filers in the nine states that have no or only a partial income tax and to state and local governments, which can charge higher sales taxes than what might otherwise be politically possible.

Not an exhaustive list, by any means. All told, 55 tax breaks expired at the end of last year. Congress will almost surely renew most, if not all — and on a bipartisan basis.

A Double Standard

Everyone from left to right believes the federal tax code is ripe for reform — one that would eliminate many of these “temporary” tax breaks and permanently incorporate the rest.

At the same time, every one of the breaks is in the tax code because some taxpayers with clout wanted it there. Talk about your job creators. Corporations have retained an “army” of at least 1,359 lobbyists to press for the extenders, Americans for Tax Justice reports.

Well, EUC benefits create and/or preserve jobs too. Failing to renew them will leave the labor market shy 240,000 jobs this year, according to White House economists.

Yet try as they might, leading Democrats, a not-so-well-paid army of advocates and jobless workers who aren’t getting paid at all can’t budge House Republicans, including the Ways and Means Committee majority, which has jurisdiction over EUC, as well as taxes.

A year-long EUC extension would have cost an estimated $25 billion — about 8% of the House Ways and Means extender package. And the committee still has a bunch of tax breaks to go.

 

 


Doing Our Bit for Defense

April 14, 2014

Having exhausted all possibilities for procrastination, I finally prepared my tax returns. Then I got a receipt from the National Priorities Project. You can too — and as I did, also get a receipt for the typical taxpayer in your state.

Here are some things I learned.

First off, District of Columbia filers paid, on average, $5,560 more than the average for taxpayers nationwide. The District’s average is, in fact, higher than the averages for all but one state — Connecticut.

This, of course, speaks to how very well the better-off households in the District are doing. How the less well-off are doing is a different story. It’s doubtful that those in the bottom 20% earned enough to owe any federal income tax this year.

But however much or little we owe, we pay the same portions for each and every item in the federal budget.

So about 27 cents of every dollar we pay goes to defense.* For the average D.C. taxpayer, this translates into $4,681, plus nearly $873 for veterans benefits, which NPP tabulates separately.

Skimming down the receipt, I see that this same taxpayer will contribute about $1,744 to Medicaid and the Children’s Health Insurance Program, but only piddling amounts to other programs for low-income people. For example, s/he’ll chip in:

  • $42.07 for WIC  — probably about 60% of the cost of one month’s worth of the healthful foods supplement for one low-income mother or child in the District.
  • $23.36 for the Low Income Home Energy Assistance Program — just a few dollars more than the cost of restoring SNAP (food stamp) benefits for one of D.C. household that receives them.
  • $106.24 for Temporary Assistance for Needy Families — about 25% of the current maximum cash benefit for a D.C. family of three.
  • $215.87 for Pell grants and other student financial aid.

Now, the receipt doesn’t account in detail for all income tax dollars that support programs for low-income people. SNAP and free and reduced-price schools meals, for example, are included in the Food and Agriculture category, but not broken out.

And I haven’t cited above two the receipt itemizes that benefit low-income people, as well as others, i.e., job training and employment programs and the Community Development Block Grant.

But even adding them in still leaves the average D.C. taxpayer — and me — spending nearly 10 times as much on defense. I’m sure as can be that the federal budget could “provide for the common defense” with less.

That would leave more to patch the frayed safety net and to help more people achieve economic security without it. There’d be more to meet other essential needs too, e.g., protecting public health and safety, refurbishing our neglected infrastructure, enforcing civil rights and labor laws.

Perhaps not enough more, however. I, for one, would be willing to pay higher taxes — painful as that would seem at this time of year — if a larger share went to these priorities.

Congressman Paul Ryan and his Republican colleagues in the House would instead cut my taxes — or so it seems. The Center for American Progress, among others, says they’d actually rise.

Whichever, the just-passed House budget plan will clearly shift more of our tax dollars into defense  — and drastically reduce our relatively small contributions to major safety net and other non-defense programs.

Obviously not a budget reflecting my priorities — or those of most of my fellow taxpayers either, according to the polling data NPP cites.

We’ve got to do more than grumble at tax time to get a budget we like.

* The Center on Budget and Policy Priorities reports a considerably lower figure. This is mainly because it includes Social Security and Medicare. NPP excludes spending from dedicated revenue streams like payroll taxes.

 

 


EITC Reforms Would Give Childless Workers a Fair Shake

February 27, 2014

As the tax filing season opens, the Internal Revenue Service, local government agencies and nonprofits across the country have launched their annual campaign to inform potentially eligible workers about the Earned Income Tax Credit and to help them claim it.

IRS estimated that about 21% didn’t in 2010. Roughly 26% didn’t here in the District of Columbia — a higher percent than in all but five states.

The District workers missed out not only on the federal credit, but on the credit the District provides in its own tax code. Twenty-five states have their own EITC as well, though one of them — North Carolina — won’t after this filing year.

Notwithstanding the missing claimants, the EITC is one of the most powerful anti-poverty programs we have — second only to Social Security. Last year, it lifted 6.5 million people, including 3.3 million children above the poverty threshold.

This is partly because it’s a refundable credit. In other words, if claiming it reduces what filers owe to less than zero, IRS pays them the negative balance. The EITC is also refundable in all but four states that have one.

The EITC enjoys broad support across the political spectrum — something you can hardly say for most other programs that only people below a certain income level qualify for. This is because it’s available only to people who’ve earned income by working — and thus widely viewed as a work incentive.

A substantial body of research indicates that it actually is — or at any rate, has been, since much of the work has focused on single-mother employment in the late 1990s, shortly after welfare “reform” and several expansions of the EITC.

Yet, as I’ve written before, the EITC shortchanges childless workers. Those under 25 aren’t eligible for the credit at all. For those who are older, the credit is very small — just 7.65% of earned income to a maximum of $496 for this tax year.

And there will be no more credit available for a single childless workers when earnings reach $14,590 — less than what a full-time, year round job at the federal minimum wage pays. Hardly better for childless married couples.

These restrictions doubly disadvantage childless workers in the District and most of the EITC states because their tax credits are pegged to the federal. In other words, workers are eligible for a fixed percent of their federal EITC benefit.

Here in the District, it’s 40%. So the maximum childless workers can to receive this year is $195 — a partial explanation perhaps for those missing claimants.

The Center on Budget and Policy Priorities notes that some prominent conservatives have recently recommended reforms to make the EITC a more effective support for childless workers — mainly as a substitute for raising the minimum wage.

Such reforms are nevertheless one anti-poverty measure that might bring conservatives and progressives together, CBPP cautiously suggests.

Caution is certainly called for here — and not only because conservatives are pumping the EITC as a way of dumping on the long-overdue federal minimum wage increase.

We’ve got EITC reform bills in Congress right now that would drop the eligibility age to 21, double the maximum credit for childless workers, boost the rate at which their earnings rise to the maximum and extend the phase-out.

No Republican cosponsors. One reason may be that expanding the EITC will result in more and larger refunds. As Politico notes, they’re counted as federal spending — something we’d hardly expect Republicans to support more of (except for defense).

Thus, for example, Presidential-hopeful Marco Rubio’s anti-poverty plan would replace the EITC with a wage subsidy that would benefit childless workers and families with children equally. But, says his spokesperson, the proposal will be revenue neutral. So it will take from one needy group to give to another.

If President Obama really thinks that he and Rubio can work together to strengthen the EITC for single childless workers, as his State of the Union address suggested, he’s probably in for another disappointment.

And clearly disappointment from lead House Republicans, who swiftly found reasons to oppose the as-yet unseen EITC expansion in his Fiscal Year 2015 budget.

As with the minimum wage, the District may just forge ahead rather than wait for Congress to do what it seems unlikely to do in the near future.

The DC Tax Revision Commission has recommended changes that would make the District’s EITC significantly more beneficial to childless workers. They would:

  • Raise the maximum credit to 100% of the federal credit.
  • Extend the availability of the maximum credit to $17,235 of adjusted gross income for both single and married childless workers.
  • Fully phase out when AGI reaches $22,980.

The EITC is often referred to as a measure that makes work pay. The Commission’s proposal would certainly make work pay more for childless workers at the low end of the income scale.

A good step, though not the only one to make the District’s tax code more progressive. And it might reduce the poverty rate too.


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