New Plan to Reduce Child Poverty in America

August 20, 2015

Children have the highest poverty rate of any age group in our country. Nearly 14.7 million of them — 19.9% — are officially poor, according to the latest Census report.

The percent is even higher for infants and toddlers, a new brief from the Center for American Progress tells us — nearly 23% or well over one in five. CAP has a four-part proposal to reduce the child poverty rate — and the depth of poverty for children who’d still be poor.

Unlike a plan I earlier blogged on, its parts all have to do with the Child Tax Credit. The first part, tucked into the brief as a starting point, is a permanent extension of the improvement the Recovery Act made. It’s now among the refundable tax credit improvements due to expire in 2017.

CAP’s plan would then do what some progressives advocated for the Recovery Act — drop the threshold for claiming the CTC to the first dollar of earned income, rather than the first dollar over $3,000.

At the same time, the plan would make the CTC fully refundable. In other words, a family would get a refund from the Internal Revenue Service for the entire amount its income tax liability fell short of the deductions and credits it claimed.

The credit now phases in to a maximum of $1,000 per child, leaving low-income parents with only a partial credit — or in some cases, no credit at all for a second or third child.

A third change would index the per child credit to inflation so that it didn’t lose value over time. Like the other two parts I’ve cited, linking the credit to the Consumer Price Index the IRS uses for tax provisions would make the CTC more like the Earned Income Tax Credit.

Now comes a part that CAP refers to as “enhancing” the CTC, but would actually be more like the child allowances many European countries (and a few others) provide. Families with children less than three years old would get $125 a month, regardless of income or how they net out at tax time.

They’d get this supplement monthly as a direct deposit to their bank account or on a debit card. So they’d have more to spend as they needed it to pay for the costs of caring for their babies and toddlers.

These costs can be very high. I’ve already said my bit about diapers. Full-time day care in a center for an infant cost, on average, more than $10,000 a year in half the states in 2013. And far from all poor and near-poor families can have their children’s daycare costs subsidized by either of the two main federal funding sources.

Rolling all the costs together, a CNN Money calculator tells us that a low-income family will have to pay, on average, an estimated $176,550 to raise a child born two years ago — $35,880 more if they live in an urban area in the northeast part of the country.

Now, CAP’s proposals would hardly supply parents with the wherewithal to pay for anything approaching this. Nor are they intended to. They wouldn’t eliminate child poverty either. They would, however, reduce it.

The overall poverty rate for children under seventeen would fall by 13.2%, CAP says. About 18% of children under three would be lifted out of poverty altogether — this, I assume, because of the extra income boost parents of children this young would get.

CAP also looks at the combined effects of its proposals on families with infants and toddlers who’d still have incomes (less any EITC refund and/or cash benefits) below the federal poverty line.

For them, it estimates how far its proposal would go toward closing the “poverty gap,” i.e., the difference between their average income and the FPL.

The gap would shrink by an estimated 26.1% nationwide, it reports. But, of course, the proposals would shrink the gap for all now-poor families with children — perhaps, in fact, lifting some of them above the FPL and, for sure, reducing the poverty gap for all.

The gap-closing effects of the proposals would vary considerably from state to state, a map supplement to the brief shows. They range from 25.4% in Hawaii to 12% in Wyoming. We who live in the District of Columbia could see a gap roughly 16.4% smaller.

CAP’s proposals would cost an estimated $29.2 billion if they were all in place this year. Somewhat more in the future, since the child tax credit would increase to keep pace with consumer price inflation.

This is hardly a big investment, even for spending through the tax code. So-called tax expenditures will cost the federal government about $1.22 trillion this year, the National Priorities Project reports.

Unlike many of the tax breaks, however, investments to reduce child poverty would pay for themselves many times over. An oft-cited study conducted in 2007 concluded that child poverty cost our country about half a trillion a year. Adjusting for inflation, CAP puts the total at more than $672 billion.

But this is a low-end estimate because the study included only the largest and mostly easily quantifiable costs, as the authors dutifully noted.

One doesn’t, I think, want our policies to hinge on dollars saved by alleviating the hardships and lifelong consequences of growing up in a family that’s so short on money as to be officially poor — or the hardships parents suffer to do the best they can for their children.

But if the return on investment would help CAP’s proposals gain support in a Congress that seems reluctant to even sustain the anti-poverty programs we’ve got, a strong talking point is ready to hand.

 


Too Soon to Lock in DC Tax Cuts

June 25, 2015

Life is full of surprises, they say. So is the District of Columbia’s budget. I’m referring here to the Budget Support Act, the package of legislation that’s paired with the spending bill.

Turns out that the BSA the DC Council will soon take its second required vote on could trigger tax cuts before either the Mayor or the Council knows how much the District will need to spend just to keep services flowing — let alone how much it should spend.

Whoever knew? Doubtful all Councilmembers did, since Chairman Mendelson distributed the final BSA shortly before the first vote. Other interested parties surely didn’t because it wasn’t published.

And one would have needed time to figure out what the Chairman had done because his bill doesn’t spell out how it would change trigger provisions enacted as part of last year’s BSA.

Well, we know now — or could, thanks to a heads-up from the DC Fiscal Policy Institute and a DC for Democracy post that adds some angles.

The basic issue here — though not the only one — is when tax cuts recommended by the Tax Revision Commission should go into effect. Both the original BSA provision and the new version require a revenue projection higher than an earlier one.

Tax cuts wouldn’t all kick in at once, since that would immediately throw the budget out of balance. Last year’s BSA ranked them in priority order. The ranking would stay the same. But that’s as far as the parallels go.

Set aside for a moment the egregious lack of transparency. What’s wrong with the latest plan for triggering tax cuts based on rosier revenue projections? Three big things.

Tax Cuts Take Priority Over Spending Needs

The new plan would dedicated all of the projected revenue increase to tax cuts, rather than the excess over a threshold set by the current BSA.

And it would do that before the Chief Financial Officer had estimated the costs of sustaining existing programs in the upcoming fiscal year. These tend to rise for various reasons, as DCFPI notes.

Beyond that, we’re not spending as much as we should in a number of areas — affordable housing and homeless services, to name just two. This year’s budget makes some progress on both. But further progress will stall if the Mayor and Council can’t allocate the revenues needed.

Without them, the Housing Production Trust Fund — the single largest source of financial support for affordable housing construction and preservation — could have less next fiscal year, since half of the $100 million it has now reflects a one-time appropriation.

The next steps envisioned in the latest strategic plan to end homelessness in the District also hinge on further investments. For example, the plan envisions year-over-year increases in permanent supportive housing for families, plus some rapid re-housing vouchers extended past the usual one-year limit.

It also calls for some indefinite-term vouchers earmarked for families and single adults who can’t afford housing when they don’t need intensive supportive services any more or come to the end of their rapid re-housing extensions.

And at the risk of beating a dead horse, I’ll add that we’re likely to have homeless families until the Mayor and Council significantly increase Temporary Assistance for Needy Families benefits, which now, at best, leave a family of three at about 26% of the federal poverty line.

More generally, setting automatic triggers for a series of tax cuts denies both the Mayor and Council a chance to weigh priorities during budget seasons. Those tax cuts, recall, will mean relatively less in revenues not only next year, but every year — unless they’re repealed.

A whole lot harder politically to repeal a tax cut than to defer it until it won’t preempt spending that will do more good for more people than reducing tax obligations for some.

Cuts in the Offing Tilt Toward Well-Off Taxpayers

The Tax Revision Commission made nearly a dozen recommendations for cuts — a mixed bag if you believe that individuals and businesses should contribute to the general welfare according to how well they’re faring.

The Council adopted a couple that ease tax burdens for low and moderate-income residents. But those ranked highest in the BSA now don’t reflect a consistent preference for a progressive tax structure — far from it.

The second listed, for example, would reduce the tax rate on income between $350,000 and $1 million. Next on the list — and again in fifth place — are cuts in the franchise taxes that businesses pay.

The threshold for any tax on estates would increase to $2 million before filers would get larger standard deductions — the option virtually all low-income taxpayers choose because they’d pay more by itemizing.

Bigger Revenue Losses Than Recommended

The Tax Revision Commission recommended revenue increases to offset the losses resulting from its recommended cuts. The Council took a pass on two. The new BSA would do the same, forgoing $67 million, DCFPI reports.

So there’d be a straitjack on revenue growth — possibly indeed future shortfalls. The District has had these before — the latest only just remedied by savings found.

What the shortfalls tell us is that revenue projections are inherently iffy — the more so as they estimate collections beyond the upcoming quarter of a fiscal year. That’s just how forecasts are. Ditto projections of spending needs.

Who, for example, can foresee a prodigious snowstorm, requiring millions more to clear the roads than budgeted? Who, at this point, can predict how much crucial programs will lose due to federal spending cuts?

So it seems unnecessarily risky to plow ahead with tax cuts before next year’s budget is even on the drawing board. And if past is prologue, programs that help low-income residents are what the BSA would actually put at risk.

UPDATE: I’ve learned, from reliable sources, that the excess revenue threshold in the current BSA applied only to the forecast used as the basis for next fiscal year’s budget. Under the current law, tax cuts would kick in with any higher revenue forecast, but not until next February. The Mayor could, if she chose, ask the Council to approve using the extra for unmet needs instead.

So what I wrote about the current BSA is misleading, but my basic point that the new BSA would trigger cuts prematurely stands.

 

 


Another Take on the Proposed DC Sales Tax Increase

April 16, 2015

The DC Fiscal Policy Institute makes a case for the proposed increase in the District of Columbia’s sales tax. It’s persuasive. And the more I’ve thought about it, the more I’m persuaded that the increase will serve the interests of some of the District’s poorest residents better than a campaign to replace it.

So, in a semi-retraction of my earlier post, here’s what DCFPI says, fleshed out for those who haven’t been immersed in the issues and punctuated with remarks of my own.

The increase is very small. It would add a quarter of a penny per dollar to the purchase price of anything subject to the sales tax. DCFPI has figured that poor families would probably have to pay at most $25 more a year.

The District needs additional revenues for homeless services. The Mayor has said that the additional tax revenues would fund the first steps in making reforms laid out in the new strategic plan adopted by the Interagency Council on Homelessness.

Her budget would, among other things, provide more permanent supportive housing for chronically homeless individuals and families with a chronically homeless adult member.

It would convert a pilot rapid re-housing program for individuals into a regular program and expand it so that more of them who don’t need PSH could move from shelter into housing they’ll be able to afford — at least, till their short-term subsidy expires.

It would create some new, specially-targeted housing vouchers for individuals and families who no longer need the intensive services PSH provides, but can’t afford market-rate rents. Individuals and families who come to the end of their term in rapid re-housing, but still can’t afford those rents would also be eligible for the vouchers.

The budget would also dedicate funds to begin the process of closing the over-large, decrepit DC General family shelter. About $4.9 million would pay rent to landlords who’ve offered up units — thus moving 84 families into more habitable living quarters swiftly.

All worthwhile investments, I think you’ll agree.

Other recent changes in the District’s tax code would more than offset the increased sales tax burden on lower-income residents. The DC Council enacted a higher standard deduction for income taxes last year. It expanded the Earned Income Tax Credit for childless adults, enabling them to get the same credit as from the federal EITC.

And it raised the income threshold for Schedule H property tax relief, which benefits renters, as well as homeowners. Elderly residents get a higher tax credit too.

Now, of course, residents with no earned income and not enough income from any other source to owe income taxes or pay rent won’t benefit from these changes. But “a large share of lower-income households” would come out ahead, even with the sales tax increase, according to DCFPI.

The Tax Revision Commission recommended the increase. Now, the Commission need hardly be the last word on the District’s tax policies. In fact, at least one of its recommendations made me cringe — a five-fold, plus increase in the dollar value of estates exempt from our local estate tax. (DCFPI didn’t like this either.)

At the same time, the Commission’s recommendations have credibility where it counts. The income tax and EITC changes I mentioned above originated with the Commission. So from a political perspective, the sales tax increase stands a better chance in the Council than some more progressive revenue raisers coming out of left field (pun intended). And we already have some evidence that any increase is likely to encounter headwinds.

The increase would make the sales tax rate the same as Maryland’s and Virginia’s. The point, I think, is not that the District should model its tax policies on its neighbors’. It’s rather that the new sales tax rate wouldn’t be higher than theirs — and thus tend to shift retail purchases across the borders.

Perhaps DCFPI is also giving preemptive reassurance to Councilmembers who’ve used Maryland and/or Virginia tax rates as arguments against tax increases here. Whether this strategy will work remains to be seen. It doesn’t seem to have gotten Finance and Revenue Committee Chairman Jack Evans on board. Nor will it, I suspect. But he’s only one Councilmember out of what will soon be twelve.

Bottom line: I doubt the Council will adopt an alternative, more progressive revenue raiser to support reforms in our homeless services system. And I’m quite sure it won’t shift nearly $19 million from other programs to support them while leaving revenues alone.

If we want those homeless service reforms, then we’ve seemingly got to settle for a less than ideal way of getting money for them. And this won’t be the end of the story anyway because the sales tax revenues won’t cover the costs of putting all those needed reforms in place.

 


Should DC Raise Its Sales Tax to Help End Homelessness?

April 6, 2015

As you may have read, Mayor Bowser has proposed a quarter of a percent increase in the District of Columbia’s sales tax to raise revenues for homeless services. The new rate would be 6%, as it was from mid-2009 until October 2013.

The bump-up would raise an estimated $22.2 million in the upcoming fiscal year and slightly more in each of the three out-years the budget must project. About $18.7 million would move the District toward the goal of ending homelessness.

One of those quick, easy Washington Post online articles asks whether Bowser should be increasing the sales tax — quick and easy because it consists mainly of imported tweets. But it poses a good question. And we’re bound to hear more answers than we already have.

Here’s how I see the issue at this point.

For the Sales Tax Increase

The best argument in favor of the increase is that the District needs more money to reduce homelessness — let alone to make it “brief, rare, and non-recurring,” as the new strategic plan intends.

The DC Fiscal Policy Institute gives us an itemized account of $12.7 million in spending on plan priorities that the sales tax increase would apparently cover.* The remainder of the $18.7 million would give about 6,000 families a yearlong reprieve from the impending cut-off of their Temporary Assistance for Needy Families benefits.

Many are homeless already. But the reprieve is still a fair, sensible preventive measure if ever there was one. It would be even more effective (and fairer) if the budget rolled back at least some portion of the earlier benefits cuts that have left the families with a pittance.

Against the Sales Tax Increase

DC Council Chairman Phil Mendelson was quick off the dime. “When revenues are growing by 3 percent,” he told reporters, “you don’t need to be raising taxes.” This, however, assumes that projected revenuessans tax increases, will be enough to pay for all critical needs.

Tackling the large, complex homelessness problem is, of course, only one of them. Perhaps Councilmembers can carve out sufficient funding from other programs, but neither he nor anyone else knows that now. And it’s not what he’s saying.

What he also says, however, raises what’s probably the most significant objection to the sales tax increase — and to sales taxes generally. They’re regressive, i.e., take larger shares of income from lower-income people than from those who are wealthier.

The District’s sales tax isn’t as regressive as some. I recall my shock when I moved from Berkeley, California to St. Louis and discovered that I had to pay tax on food I bought at the grocery store and on over-the-counter medicines.

The proposed increase would nevertheless require anyone who shops in the District to pay somewhat more for items that are also basic necessities — toilet paper, soap, light bulbs, shoes, etc. Most shoppers who’d take the hit are District residents.

DCFPI’s Executive Director, Ed Lazere, puts the best face on this he can, telling a Washington Times reporter that the effect on families is likely to be modest — a point the Institute’s budget brief repeats.

But, he adds, “All things being equal in a city that is marked by increasing income inequality, it probably would have been reasonable to raise revenues by asking those with the highest incomes to pay a little bit more.”

Alternative Revenue Raisers

Now, I don’t have anything like the expertise to say how the District could raise at least as much revenue as the proposed sales tax increase in a more progressive way. But I can draw on concepts experts have floated.

You who follow this blog know I’m about to get on my hobby horse and cite services that are still exempt from the sales tax. All but six in the long list DCFPI compiled in 2010 still are. And the vast majority of them can hardly be viewed as basic necessities.

Our property taxes are also worth a look. We have some extraordinarily pricey homes here in the District that are taxed at the same relatively low rate as small, unrenovated homes in our as-yet ungentrified neighborhoods.

And the tax collected doesn’t capture their actual increasing value because residential property tax increases are capped. Owners who live in those homes most of the year also benefit from reduced assessments.

I understand the need to craft a property tax increase carefully so as to protect low-income owners who bought their homes many years ago, before housing prices soared. But I think it could be done.

What surely could be done is to repeal the recent property tax break for seniors with incomes far from low. This beneficiary would willingly forfeit it to help fellow residents with no homes whatever.

There are probably other — and perhaps better — alternatives. But whatever the DC Council may consider will raise outcries from some interested parties. That’s just how revenue policymaking works. As former Senator Russell Long quipped many years ago, “[D]on’t tax you, don’t tax me, tax that fellow behind the tree.”

In the immediate case, I hope that fellow behind the tree won’t be a mother who already can’t afford to buy enough diapers.

That said, it may be wrong to frame this issue as an either-or choice. DCFPI cites several priorities that could require more revenues than the sales tax hike would raise. Two speak directly to homelessness — the rollback of the TANF benefits cuts and additional locally-funded housing vouchers.

More generally, I suspect that dedicated sales tax revenues will fall far short of the funds needed to end long-term homelessness in the District within five years — even if budgets continue to ensure $100 million a year for the Housing Production Trust Fund.

I note that the Mayor’s State of the District address pushes the target year forward to 2025. Doubt this is just a slip by her speechwriter.

* As DCFPI notes, the Mayor’s budget includes $40 million to construct some smaller shelters — a step toward replacing the DC General family shelter. The money would be borrowed, however, not drawn from sales tax revenues.

 

 


Did I Pay My Fair Share of Income Taxes?

March 19, 2015

Here we are again approaching the deadline for filing income tax returns. I’ve just finished an all-day session with my tax software and miscellaneous 1099s, receipts, cancelled checks and the like. Now I ask myself whether I paid my fair share.

To borrow from a former President, it depends on what the meaning of “fair” is. Like most people, I suppose, I believe it begins with paying more than filers with lower incomes. Like most, but not all people. We mustn’t forget the flat tax folks, who’d consider our tax system fair if everybody paid the same share of his/her income.

I’m pretty sure I paid more than people with considerably lower incomes, but I doubt that translates into my fair share. I’ll tell you some of the reasons why because they speak to what seem to me dubious preferences built into the federal tax code.

First off, I paid a lower percent of my income than people who earned the same amount by working. That’s because I benefited from the preferential rate for both capital gains on assets held for more than a year and qualified dividends, i.e., those that meet specific criteria, as most paid to shareholders in U.S. corporations do.

Defenders of the rate claim, among other things, that it’s an incentive to invest — thus grows our economy, creates jobs, etc. This seems to me pretty lame. What would I do with the money instead? Spend it all, which itself would grow the economy? Put it under my mattress? In a savings account, where it would lose purchasing power because the interest rate is usually lower than the inflation rate?

Defenders also claim the money has already been taxed, either as corporate profits or as income earned by working. For me, the latter isn’t altogether true — at least, not in the sense that I would be taxed twice. I have as much investment income as I do because I was a beneficiary of trusts established by my grandmother and younger sister.

I sold some of the stocks I inherited last year and others in earlier years. I didn’t pay taxes on anything close to the difference between purchase and sale prices — the usual basis for capital gains. Instead, I paid only the market value the stocks had gained since the trusts passed them along to me.

So the total profit was far greater than the taxed amount because the value of the stocks was “stepped up” to the dates when my grandmother and sister died. Nobody paid taxes on the value gained before then. I can’t see what’s fair about that.

But it’s not exactly a loophole, as President Obama has termed it. It’s a feature, not a bug in the estate tax — and ardently defended.

What then about the income taxes I pay to the District of Columbia? The District has a fairly progressive income tax structure. But the tax itself is based on the federal, both adjusted gross income and itemized deductions.

So the break for capital gains and dividends carries over. Likewise, the hidden capital gains break due to the stepped-up basis. I thus benefit twice over.

I don’t want any misunderstanding here. I’m not — and never was — one of those CEOs or hedge fund managers whose compensation packages are artfully structured to minimize what they owe Uncle Sam.

I’m a fairly ordinary middle-class person, born to middle-class parents, one of whom had a parent who actually bootstrapped his way off the streets of New York. Wouldn’t have those trust assets without him.

I understand that the tax code can’t be rejiggered to compensate for the advantages I’ve had because I chose my parents wisely. But that doesn’t mean it should pass those advantages along by preferential rates and the like.

The tax code, after all, is how our federal, state and local governments raise revenues for all the programs and services that compensate for disadvantages — from pre-birth through adulthood — that make it so difficult for people born poor and near-poor to live in reasonable comfort and security.

The Institute on Tax and Economic Policy says that a “fair tax system is one that asks citizens to contribute to the cost of government services based on their ability to pay.” I’m inclined to go further because so many critical services don’t cost enough now.

All but 14 of more than 150 federal programs that are supposed to serve the needs of low-income people — and in some cases, others too — have less in real dollars this year than they had in 2010. About a third have effectively been cut by at least 15%.

This argues for an end to sequestration, i.e., the spending caps Congress passed as a fallback, thinking (wrongly) that the members appointed to the so-called supercommittee would come up with a more sensible deficit reduction plan.

Such a plan would surely include measures to raise more revenues from individuals who have the ability to pay, as well as corporations that now have — and exercise — the ability to pay less than nothing.

Two Republican Senators — Marco Rubio and Mike Lee — have instead come up with a plan of sorts that would, among other things, altogether eliminate the capital gains, dividends and estate taxes.

If you think the tax code is unfair now, as I do, just imagine how more unfair it might be. And how much more unfair our country would be, since the Rubio-Lee plan would cause the deficit to skyrocket.

We know what would happen to programs for low-income people then. We need only look around our communities to see what’s happened already.

 

 


Why Worry Now About Time-Limited Refundable Tax Credit Expansions?

March 12, 2015

Say Congress decided to preserve the expansions of the Earned Income Tax Credit and Child Tax Credit that were originally part of the Recovery Act. What would this mean for low and moderate-income working families? Citizens for Tax Justice answers.

In 2018, more than 13 million families, including about 24.8 million children would benefit by an average of $1,073 per family. They’d gain an average of $905 per child. This is only the first year the tax credits will revert to their earlier forms unless Congress acts.

CTJ provides state-by-state estimates, as well as these national estimates — and for each of the refundable tax credits, as well as the two together.

So we learn, for example, that 20,175 families in the District of Columbia, including nearly 45,000 children would benefit from the two tax credits combined. Their average gain would be slightly more than the national average — $1,093 per family. This is somewhat more than two whole weeks of pay for a full-time worker earning what will then be the minimum wage.

The expanded CTC would have the greater impact in terms of both the number of families helped and the average per child benefit, according to the estimates. This is presumably because, without the expansion, families who owe less than zero in income taxes couldn’t receive any refund at all unless their incomes were somewhere around $14,700.

But, as I noted in an earlier post, the District’s own EITC is linked to the federal, as is also the case for all but one of the 25 states with their own EITCs. So the ultimate boost to family budgets is greater than what CTJ estimates.

The flip side of all this, of course, is that a large number of family budgets would take a hit if Congress lets the refundable tax credit improvements die. And that seems thus far what Republicans have in mind.

They do rather like the notion of a child tax credit. But they would expand it up the income scale, while letting the threshold for claiming it revert to its pre-Recovery Act minimum, plus all the inflation adjustments since 2009 — and further adjustments yearly.

The bill the House passed last year, with some Democratic support, would have reduced after-tax income not only for families that couldn’t claim the refundable CTC at all, but for those with incomes as high as $40,000 a year.

President Obama’s budget would make the Recovery Act improvements permanent. The first-year cost in lost revenues would be slightly under $14 billion, CTJ says. A small fraction of the budget, but not chump change.

And, of course, the 10-year estimate we’re used to seeing is considerably higher — roughly $103.8 billion, if I’m reading the Treasury Department’s table correctly. But the President’s budget includes revenue-raisers too.

Well, the President has proposed locking in the EITC and CTC improvements before. Best he could get was an extension that will expire at the end of 2017. Many of us haven’t even filed our 2015 tax returns yet. Why should we worry about 2018 now?

The answer lies in what’s underway in our Republican-controlled Congress. On the House side, Republicans are again moving to convert time-limited tax breaks, mostly for businesses, into permanent law.

The packages they’ve already passed will cost more than $93 billion over the first 10 years. No offsets for the revenue losses, just as there weren’t last year. And there are other temp-to-perm tax breaks in the pipeline.

The more such “tax reform” we have, the slimmer the chances of saving the refundable tax credit improvements. Just look at that deficit, Republicans will say when the improvements are about to expire. Can’t possibly extend them. Next thing you know, we’d be Greece.

We need also to consider the practical politics of trying to pass a bill that does nothing by extend expanded tax breaks for lower-income families. Things being as they are, these benefits don’t stand much of a chance unless they’re packaged with others that appeal to Congress members who’ve got their eyes on wealthier constituents and/or corporate donors.

This, I think, is what top experts at the Center on Budget and Policy Priorities meant when they said, about last November’s huge tax break package, that it risked “stranding” the temporary EITC and CTC provisions that have proved so beneficial to low-income working families.

The fewer tax breaks Congress has left to extend, the fewer the “linkages” supporters can make — or perhaps one should say the fewer opportunities for horse-trading.

In another world, we wouldn’t need them. The EITC and CTC, in their current forms, have lifted more people out of poverty than any other federal benefit, except Social Security — 8.8 million last year, the Census Bureau reports.

The tax credits reward work. We’re supposed to like that. They help support families with children. We’re supposed to like that. And I believe we do, Republicans and Democrats alike, though we’ve differences between and within the parties on certain types of families.

Be that as it may, the EITC and CTC expansions are clearly endangered. We’d otherwise find them in bills that aim to make other time-limited tax measures permanent. And we certainly wouldn’t have had Republicans blaming their exclusion on the President’s immigration actions.


Why We Should Care About Payroll Tax Holidays for High Earners

February 19, 2015

Last week, the top 1% of American workers finished paying their Social Security taxes for the year — an inflection point flagged and flogged by the Center for Economic and Policy Research. On the very same day, the Senate Budget Committee held a hearing on the impending depletion of the Social Security Disability Insurance trust fund.

These two events are related because the first provides a fresh perspective on the second, as well as a solution that’s not fresh, but seems sensible anyway.

As I’ve written before, the so-called DI trust fund will run out of reserves in 2016, unless Congress and the President agree on a solution. If they don’t, former workers with severe disabilities will receive only about 80% of their benefits — an average loss of nearly $244 per month.

That’s a real dent in the household budget. Average benefits now are $1,165 a month for disabled workers themselves and only $811 more for those with qualifying spouses and children.

The shortfall has been predicted for a long time, based mainly on demographic changes in the workforce, e.g., the aging of the baby boomer cohort, the large increase in the number of women working — and working long enough to qualify for SSDI.

Federal policy choices have contributed as well — specifically, the decision to take some pressure off the Old Age and Survivors trust fund by raising the eligibility age for full retirement benefits. But for that, many disabled baby boomers wouldn’t be receiving SSDI benefits any more.

All these factors explain why money is going out of the DI trust fund. The beginning of the payroll tax holiday for the very highest earners — and upcoming tax holidays for others who are doing quite well — explains why not as much money is flowing in.

As I’m sure you know, all of us who get paid for our work owe payroll taxes. If we’re employees, we pay 6.2% for Social Security. Our employers deduct it from our checks and pay the same amount. If we’re self-employed, we owe the whole 12.4%.

But the income subject to Social Security payroll taxes is capped — and always has been. For more than 30 years, the cap has been adjusted annually based on the average national wage index.

The index almost always rises, though rarely by a lot. The cap this year is $118,500 — up by $1,500 from last year.

But as everyone who hasn’t been living in a cave knows, more and more income is flowing to very high earners — those making a million or more a year. There were already six times as many of them in 2013 as in 1989, according to the Center for American Progress.

So more and more income escapes the Social Security tax. And it’s not only wage income enjoyed by the millionaires and billionaires, as this year’s cap indicates.

Class warfare alert! Not really. The point is that income inequality helps explain why the DI trust fund could soon run dry — and why the OASI trust fund will long about 2034 — unless our federal policymakers come up with a way to preserve the benefits that most workers and their families need.

A stopgap solution we already have — a relatively small increase in the share of payroll taxes going to the DI trust fund. But as I recently wrote, House Republicans have passed a rule to block any such shift, precedents notwithstanding.

They say they want a long-term solution to the whole solvency problem. Thus far, however, the most we can glimpse of what they have in mind comes from Senate Budget Committee Chairman Mike Enzi, who opened last week’s hearing.

He trashed on the President, of course — in part, for proposing the payroll tax shift. But he also suggested that more workers with disabilities severe enough to meet SSDI’s strict standards could actually work because technology enables people to work from home, start their own businesses, etc.

Michael Hiltzik at the Los Angeles Times perceives a move to distinguish deserving from undeserving SSDI recipients. Perhaps. Or perhaps it means something that one of Enzi’s friendly witnesses advocated “early intervention,” i.e., rehabilitation and other services to keep people with “work-limiting conditions” in the labor force.

Bottom line, however, is that enabling some additional workers with disabilities to remain gainfully employed won’t do a whole heck of a lot to keep the DI trust fund solvent — and nothing at all to preserve full benefits for retirees.

Uncapping the payroll tax cap would. If Congress had simply scrapped the cap four years ago, it could have closed about 90% of the projected funding gap for 75 years.

Other cap-scrapping scenarios could have closed roughly 70-80%. These, which seem more politically realistic, would have boosted benefits for higher earners, as well as capturing more of their income. We’ve had cap-lifting, as well as cap-scrapping proposals too.

So there’s more than one way to minimize the projected shortfall. But any solution that leaves the cap alone is bound to severely reduce retirement benefits — perhaps deny some severely disabled workers and their families any benefits at all.

Not much of a worry for those folks whose tax holiday has already begun. But for the rest of us ….


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