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.


DC Council Poised to Give Away Needed Tax Revenues

January 16, 2014

One hand clapping for the DC Council. Last week, it postponed a vote on a bill that would provide a double dose of property tax relief for homeowners. But it only postponed the vote. And it approved another that has no more justification than the first.

The postponed bill, sponsored by Mayor-hopeful Jack Evans, would cap annual property tax increases at 5%, instead of the current 10%. At the same time, it would eliminate the requirement that homeowners pay at least 40% of their home’s assessed value.

The DC Fiscal Policy Institute raised three concerns about the proposal. Basically, it would:

  • Disproportionately benefit owners of the priciest homes.
  • Produce widely disparate taxes on homes with the same value because there’d no longer be a minimum tax rate to moderate the differences.
  • Benefit only homeowners, though most District residents are renters and thus pay property taxes indirectly, through their rent. So we’d have yet another disparity, also tilted toward higher-income residents.

Councilmember Evans argues that no one gets an annual 10% raise. “So the government is just taking more and more of our money” — as if the government doesn’t spend the money on services for us. Besides, he says, the government doesn’t need it “when we have record high surpluses.”

Well, we’ve had surpluses in the last several years. But to say the government doesn’t need all the revenues it’s collecting is to ignore many under-funded program areas.

Too many to cite in a blog post. Anyone who lives in the District or follows what goes on here in the nation’s capital knows that larger investments in a range of programs would alleviate hardships and do more to level the playing field for low-income residents.

It’s not only that we’ve got plenty of good uses for the tax revenues that Evans and cosponsors want to give away — $32.5 million in the first four years alone. We can look forward to further shrinkage in what the federal government provides.

Though the recent budget deal suspended sequestration, it will still provide less funding for non-defense programs that depend on annual appropriations than the severe pre-sequestration cap set by the Budget Control Act. And there will be even less next year — nearly 17% less in real dollars than what was available in 2010.

So we’ll probably need more local funding just to sustain what we’ve got — and would even without federal cuts, since programs generally cost more to operate over time.

At the risk of making this post a total downer, I feel the need to add the virtual certainty of another recession, perhaps only a couple of years from now. More safety net needs then and less tax revenues too.

And if past is prologue, programs for low-income people will take the biggest hits — bigger I would guess if our policymakers have deliberately given away tax revenues.

Similar objections can be raised to the property tax proposal the Council did pass. This one altogether exempts homeowners 75 and older from the tax if they’ve lived in the District for 15 years, unless their income exceeds $60,000 a year.

Speaking as a senior homeowner, though not one yet old enough to qualify, I see no reason why age should give someone a free pass. An income low enough to make the property tax an excessive burden is a different matter.

For that, the District has a tax relief provision — Schedule H — which benefits both homeowners and renters, regardless of age. The Council has already passed and funded changes that will make more residents eligible and give them a larger tax credit.

And for us older homeowners, the District cuts our property tax in half so long as the adjusted gross income of everyone living in the house is less than $125,000 and we own at least half of it.

Not, you’ll notice, a benefit restricted to low-income seniors for whom the property tax may be a budget-breaker. Nor is the exemption of Social Security benefits from D.C. income taxes — a tax break for even the very wealthiest.

So the District is already “helping those who need help,” as Councilmember Bonds says the new exemption would do — and some who don’t, as her bill would also.

And again, it will mean less money — reportedly $21 million over the first four years — to provide help to those who need it most.

As DCFPI notes, the DC Tax Revision Commission spent 18 months looking at the District’s taxes and decided no changes in residential property taxes were needed — understandably, when they’re already lower than any others in the region.

The Commission did recommend changes that would actually benefit low-income residents. Hard to see how the Council could enact these and still balance the budget if it gives away more property tax revenues.

The Council will have to vote on the Bonds bill again, as it must for virtually all legislation. Now that it’s shown its sympathy for us seniors, I hope it will defer to the Tax Revision Commission and leave better than well enough alone.


Low-Income People Face Barriers to Savings, Including Mandated Asset Limits

August 5, 2013

The Corporation for Enterprise Development defines asset poverty as insufficient net worth to subsist at a poverty level for three months without income. In 2010, 26% of households nationwide were asset poor by this definition.

Far more — nearly 44% — were liquid asset poor. In other words, they didn’t have enough money in a bank account and/or investments that could readily be converted to cash to cover basic expenses for three months if no additional money was coming in.

These, needless to say, are households at high risk of what CFED refers to as “economic catastrophe.”

We don’t know how many of them are low-income households, though we can be quite sure a large number are. What’s sure as can-be is that their financial practices have garnered a lot of attention.

This, in and of itself, is altogether reasonable. Much smaller events than a three-month spell without income can spell economic catastrophe if paychecks or cash benefits barely cover routine living costs.

What do you do, for example, if the car you need to work breaks down? You’re staring at an economic catastrophe if you haven’t got some money stashed away.

If not a job loss, then one of those short-term, high-interest loans that often turn into a debt trap, as the Center for American Progress warns.

Looked at from another perspective, extra money in the bank or the equivalent can, as CFED says, pave the way to long-term financial security and opportunities we associate with the evanescent American Dream.

Low-income people surely know this as well as the top 1%, who reportedly own more than 35% of all privately-held wealth in the country.

Yet the former face a variety of barriers to savings. The always-quotable Heritage Foundation says they’re especially afflicted by “weaknesses” in “character traits” like grit, perseverance and the capacity to delay gratification.

Yet even it acknowledges other issues — a lack of familiarity with “the mainstream financial system,” inconvenient bank locations and hours, high bank fees, etc.

Add to these relatively low levels of financial literacy, e.g., the skills needed to assess the costs of relying on a check cashing service because you don’t have a bank account — or do, but use the service anyway.

And then there’s the matter of what deferring a little gratification would net. It’s one thing if you’re setting aside, say, $500 a month, quite another if $5.00 is the most you think you can afford.

Well, we’ve got a host of programs designed to show low-income people how they could save — even give them an incentive to do so in the form of a match.

And by and large, they seem to work, though not for everyone or for all purposes.

Even the federal government seeks to promote asset building among low and moderate-income people. At this level, however, we see policies operating at cross-purposes — one ineffective, the other regrettably not.

Since 2001, low and moderate-income taxpayers have been able to claim a credit for up to $2,000 they invest in an employer-sponsored retirement plan or IRA.

This is a far less generous incentive than the tax breaks that benefit mainly filers who’ve already got considerable wealth — the mortgage interest and property tax deductions, plus the preferential rates for long-term capital gains and dividends.

More importantly, the Saver’s Credit does nothing at all for low-income workers who’d owe nothing to the IRS, even without it because it’s not a refundable credit like the EITC.

At the same time, a number of major federal safety net programs limit the assets beneficiaries may have.

There may be some exclusions, e.g., a home, a defined pension benefit, but liquid assets a beneficiary can tap are characteristically set somewhere in the $2,000-$3,000 range.

For most, but not all programs, states can lift or waive the asset limits. Or they can altogether exclude certain types of assets. They’ve responded variously, as you might expect.

They’ve no role in any eligibility criteria for Supplemental Security Income, however. For a single person, the limit for resources counted, including money in bank accounts, retirement savings and other investments, is $2,000 — and has been since 1989.

Thus, reports one of my blog followers, s/he can’t get the air conditioning in her mobile home repaired because that would cost more than the total s/he can have in savings. “So I use a swamp cooler in the desert and try to stay cool with a water pump that’s not quite good enough.”

SNAP (the food stamp program) uses the same asset limit, except for elderly and certain disabled people, who are allowed $1,250 more.

However, states can bypass the asset limit for families who’ve already qualified for benefits funded through their Temporary Assistance for Needy Families programs. This is one of the major features of what’s known as broad-based categorical eligibility.

Forty states and the District of Columbia have adopted it. All but five set no asset limit, thus enabling very low-income families to put some money aside — perhaps with a match if they’ve earned income by working.

The House Republican majority wants to put a stop to all this. Seems they’re all for personal responsibility (and flexibility for states), but not when it comes to poor people trying to create a little nest egg — or even just have enough to get their air conditioning fixed.

But, as you probably know, the nearly $21 billion they’d save, in part by eliminating broad-based categorical eligibility didn’t satisfy.

We can be quite sure that any alternative SNAP bill they manage to agree on will seek to reinstate the standard asset limit nationwide, as well as the standard gross income limit.

Meanwhile, the preferential capital gains and dividend rates will cost the federal government an estimated $161 billion this year alone.


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