Lots of Progressive Ideas for Strengthening Working Family Tax Credits

July 28, 2016

The Child Tax Credit today is a more effective anti-poverty measure than it was before the Recovery Act made more parents eligible to claim it. But it’s still got limits that make it less effective than it could be, even given the practical constraints of public policy reforms.

My last post summarized the limits and a pair of Republican proposals for boosting the credit. Here, as promised, are proposals from more progressive quarters, plus a couple that go at child-raising costs through a different tax credit.

The Democratic party platform supports expanding the CTC, either by making more of it refundable or by indexing it so that it won’t continue losing real-dollar value. The latter presumably refers to the maximum parents can claim — frozen at $1,000 per child since 2001 and thus worth about a third less.

Democrats in Congress have proposed more ambitious reforms. Colorado Senator Michael Bennett introduced a bill last year that’s, to my knowledge, the most ambitious.

It would eliminate the $3,000 earned income threshold for claiming the credit and index the credit to inflation, making it, in both respects, like the Earned Income Tax Credit. It would also triple the value of the credit for children under six.

These reforms borrow from recommendations by the Center for American Progress. CAP, however, would restrict the more ample credit to children under three and boost it less.

The boost,  it says, will help families “when their needs are greatest.” A two-pronged rationale for this. First, parents are in the early stages of their careers and perhaps saddled with student loan debt.

Second, they’re suddenly faced with substantial new expenses, e.g., diapers, cribs, car seats. Perhaps also, though unmentioned, with the inordinately high cost of childcare for infants and toddlers — on average, $11,666 a year nationwide for those in centers.

More recently, Congressmember Rosa DeLauro and two cosponsors introduced a bill that also adopts some of CAP’s recommendations. It would provide the same boost — one-and-a-half times the regular CTC to parents with children under three.

And they’d receive it as a sort of cash allowance, paid monthly or as often as the Treasury Department deemed feasible. So they’d have the extra money when they needed it, rather than a lump sum once a year.

A broader anti-poverty bill just introduced by Senators Cory Booker and Tammy Baldwin would also index the CTC. It would make the tax credit fully refundable for all families, while targeting it the poorest. We’ll need to await a posting to learn the details.

Clinton herself has focused on childcare costs. She’d cap them at 10% of a family’s income through some combination of expanded subsidies and tax credits.

Wonkblogger Danielle Paquette thinks she’ll probably look to CAP’s recommendations for the latter. Perhaps, but a beefed-up Child and Dependent Care Tax Credit would seem a more targeted approach.

And Clinton can look to an advocacy organization for it too — the one she worked for as a new law school graduate.

Almost a year and a half ago, the Children’s Defense Fund proposed a multi-part plan for cutting the child poverty rate by 60%, without increasing the deficit, even briefly.

The Fund did propose making the CTC fully refundable, rather than keeping it capped at 15% of earned income over the threshold for claiming it. But it also proposed two expansions of the CDCTC.

One would increase the percent of care costs the credit offsets — for lower-income families only. The credit would phase down gradually, from 50% for the very lowest-income.

The other change would make the credit fully refundable for families regardless of income. It’s now only a way to reduce tax liabilities, not a potential source of extra income like the CTC and EITC.

A bill introduced only weeks ago by Congressmember Katherine Clark seems to borrow from this recommendation and from one of CAP’s — maybe by way of the DeLauro bill.

It too would provide monthly payments. But they’d serve as childcare subsidies and go directly to centers and home-based providers where eligible parents had their kids enrolled, though again only if quite young.

The credits would be higher for the youngest and also for low-income families. But even the better-off would get something if their adjusted gross incomes didn’t exceed 400% of the federal poverty line — $80,640 for a three-person family this year.

The credits would become refundable, even though the monthly payments would bypass parents. I don’t understand how this would work, not for want of asking Clark’s staff.

Stepping back out of the weeds, we can see that the next Congress and President will have no shortage of ideas for using tax credits to defray a greater share of the costs of child-raising — or at the very least, the costs of having some non-family member care for them part of the time.

Whether policymakers should focus strictly on very young children is an open question, CAP’s rationale notwithstanding. Working parents often need child care for their school-age children, though for fewer hours.

And those children have many other needs, of course — a case for making the CTC a more substantive help for low-income parents, as the Defense Fund proposes. That alone would reduce the child poverty rate by 12%, according to estimates the Urban Institute supplied.

On the other hand, we know that the experiences children have in their earliest years have singularly lasting consequences. The hardships and other stresses of poverty, for example, can impair normal brain development.

Conversely, high-quality early education has well-documented benefits, especially for low-income children, whose parents often have neither the time nor money to provide those enriching experiences that prepare children to do well in school and thereafter.

It all, I suppose, boils down to how much our country is willing to invest in the next generation. We know how we could invest more, with high returns. But we’ve known that for a long time. So it’s not lack of knowledge that’s stymied action, but lack of bipartisan political will.

 

 

 

 


Child Tax Credit Lifts Kids Out of Poverty, But Too Limited for Big Impact

July 25, 2016

Children are the single poorest age group in our country. More than one in five live in poverty, according to the Census Bureau’s latest report based on its official measure. The better measure still shows a 16.7% child poverty rate.

What these rates tell us, among other things, is that a great many parents don’t have enough money to pay for even their children’s basic needs. Nor their own, since the measures reflect household income.

We don’t have a good fix on how much they’d need. The U.S. Department of Agriculture does, however, provide rough estimates, based on a survey of what parents actually spend. Unfortunately, we get only a crude family income breakout — all families below $61,530 lumped together.

That said, USDA reports that the costs of raising a child from birth to age 18 totaled $164,160 three years ago for a single parent with one child in the lowest income bracket. Costs mount as children grow up — the total, of course, but also by their age.

Infants, on average, cost the least. But even they set low and moderate-income single parents back an estimated $10,436 in their first year. A single mother who worked full time, year round at the federal minimum wage would have only about $3,700 of her take-home pay left for all other expenses.

We do, of course, have publicly-funded programs to supplement what parents can afford to spend out of their own earnings, if any. Some are uniquely for children — the Children’s Health Insurance Program, for example, WIC and pre-college public education. Far more include both them and adults in the household.

Rolling the two kinds together, First Focus reports that this year’s federal children’s budget accounts for 7.83% of total spending — this after factoring out parents’ share of safety net benefits like SNAP (food stamps) and housing assistance.

So we’re investing relatively little in the well-being and future prospects of the next generation. No news here, though the fact that children’s share of spending has shrunk since 2010 may be. It wasn’t all that big a share then, however — just 8.45%.

What the First Focus analysis doesn’t capture is federal spending through the tax code, rather than annual budgets. The Urban Institute’s Kids Share analyses do.

The latest puts total federal spending on children at 10% of the 2014 total — roughly $463 billion. Two-fifths of that reflects tax deductions and credits for families with children.

Drilling down further, we find $53.6 billion in refunds from the Earned Income Tax Credit, i.e., money parents receive when the credit they’re entitled to, plus other gross income adjustments exceeds what they owe.

The refundable part of the Child Tax Credit was less than half that — $21.5 billion. And unlike the EITC, it was less than paid out in 2013.

The refundable tax credits together lifted roughly 10.6 million people, including 5.6 million children over the poverty threshold and made significantly more less poor than they would otherwise have been.

But clearly the EITC did most of the lifting, accounting for all but 1.7 million of the not-poor, but still low-income children. Several major reasons for this.

First off, not all parents with earned income can claim the refundable CTC. They have to have made at least $3,000 during the year, either together, if they file jointly, or alone if they’re single. The EITC, by contrast, kicks in at the first dollar of earned income.

Second, the tax credit for most working parents is capped at $1,000 per child. (No credit — and thus no potential refund — for very high-earners, who won’t concern us here.) Third, another cap limits per-child refunds to 15% of earned income above the threshold for claiming it.

These several constraints mean considerably lower tax benefits. A single parent with one child, for example, could receive $3,359 from the EITC this year. And the benefit is annually adjusted to keep pace with inflation, while the CTC isn’t.

Political leaders of various stripes have teed up proposals for boosting the CTC. Then-Presidential hopeful Marco Rubio, for example, included a $2,500 supplement to the current maximum in his tax plan.

That, said the Center for American Progress, among others, would have benefited higher-income families, while failing to protect low-income families from losing all or part of their benefits, as they would have if Congress hadn’t subsequently made the Recovery Act improvements permanent.

The House Republicans’ tax plan calls for increasing the CTC to $1,500 (presumably per child) and raising the maximum income eligibility for married couples.

The refundable part would still be capped at $1,000, however. And filers without Social Security numbers couldn’t claim it — a not-so-subtle attack on undocumented workers and their children that Republicans have repeatedly made.

Though the plan may seem more friendly to other parents with children, it actually isn’t because it would eliminate the exemption for children — $4,000 per child this year, except for very high-earners. So what the right hand giveth, the far-right hand taketh away.

Democrats have also seized on the CTC as an opportunity to strengthen support for working families. We’ve got several proposals languishing in Congress now. And we may see the issue develop in the last round of this seemingly endless Presidential campaign.

Too much for me to cover here. So I’ll reserve the more progressive approaches for a separate post. Will just note here that making child raising costs more affordable seems to have gained traction over the last several years.

Whether we’ll actually see tax credit changes will, like so many things, depend on what happens in November. Now, if poor and near-poor children could vote ….

 

 


Not Enough Money for Low-Income DC Residents, But Tax Cut for Wealthy Unchanged

May 26, 2016

As you local readers probably know, the DC Council passed a budget for the upcoming fiscal year last week. Some changes in what the Mayor had proposed for programs that serve low-income residents.

The DC Fiscal Policy Institute’s overview of the budget confirms what I’d expected. Mostly, a bit more here, a bit more there. No more for some critical priorities. And less for at least one. (The one large, new investment it cites — for new family shelters — isn’t part of the budget proper.)

I suppose we’ll be told that the Council did its best with what it had to work with. I don’t know because I don’t know nearly enough about the funding needs and prospective impacts of every program and service the budget covers.

But I do know that the Council could have had more revenues to work with. It had only to postpone — or better yet, repeal — the tax cuts prior legislation has made automatic whenever revenues rise above the estimate used for the latest budget.

The triggers have already reduced otherwise available revenues by many millions of dollars — dollars the Council could have used to shore up under-funded programs.

So much water under the bridge. And as the Chairman, who likes those triggers says, the revenues lost from cuts not yet triggered couldn’t have been used for the new budget. But the Council could have had them to spend as early as next fiscal year — and thereafter.

All tax cuts are not created equal, of course. Some on the pending list will benefit residents who’ve got enough income to owe taxes, but not a lot.

The second cut on that list, however, is a higher threshold for the estate tax. The most recent revenue forecast indicates that it will lock in soon, DCFPI’s latest account of the trigger impacts says.

So henceforth, no assets a deceased resident leaves to heirs will be taxable until they’re worth $2 million — twice the current minimum.

As things stand now, this will be the first of two estate tax cuts. The second — and considerably larger — will raise the threshold to the same minimum as applies to the federal estate tax, currently $5.45 million.

Why the District should embrace a regressive measure gained in a crisis by Congressional Republicans who could never be elected here baffles me.

True, the Tax Revision Commission recommended parity with the federal threshold, including the ongoing upward adjustments for inflation. But the Council could have taken a pass, just as it has on the revenue-raisers in the Commission’s package.

The District will forfeit $18.8 million next fiscal year alone, according to DCFPI’s estimate. And for what?

Not so that more money can pass to charities tax free. Bequests to them are already exempt. Not so that surviving spouses will have more to live on, since what passes directly to them will also still reduce the value of what counts toward the threshold.

Not even necessarily what other heirs wind up with, since a will-maker can give them as much as $14,000* each or the equivalent every year while still alive — again reducing the value of what’s potentially taxable afterwards.

The estate tax giveaway won’t just make larger investments in programs that reduce hardships for poor and near-poor residents unnecessarily difficult. It will increase income inequality in the District by giving the rich more, as well as denying the poor supports and services that help close the income gap from the bottom.

And the gap will grow from one generation to the next in part because of the way the taxable value of assets is determined. Essentially, it’s set at their value when the person bequeathing them dies.

So heirs pay capital gains taxes when they sell the assets for more, but no tax on how much the assets’ value increased between the time they were purchased and the time inherited.

And, of course, heirs don’t have to sell them. They can pass them along to their heirs, compounding the revenue loss — and wealth at the top of the income scale.

The estate tax then is a way of partly recouping the loss and, at the same time, averting a rollback to the inordinate wealth concentration of the Robber Baron days.

The higher the threshold, the less an already-shaky control on income inequality can do. And the gap between the richest and poorest District households is already very large — larger, indeed, than the DCFPI analysis I’m linking to shows because it doesn’t drill down to the top 1%.

Their incomes averaged well over $1.9 million in 2012, the latest year I’ve found figures for. This, recall, is income for a single year, not also what could readily be converted to income.

Now, no one — not even Bernie Sanders — is talking about taking so much from the rich and giving it to the rest that incomes would be equal. Nor is anyone talking about taking all the wealth the rich have accumulated when they die.

The major focus — and DCFPI’s recommendations reflect it — is reducing the gap by lifting incomes at the bottom and making those incomes more sufficient for basic needs, e.g., by ramping up investments in housing they can afford.

Not all income-lifting measures would require the District to spend more public funds. But some surely will, including workforce development and (you knew I was going to go here) reforms in the rigid Temporary Assistance for Needy Families time limit policy.

Leaving the estate tax threshold where it is won’t give the District as much more tax revenue as it needs. But the giveaway isn’t chump change either.

And it’s got nothing going for it, except a hugely successful and duplicitous PR campaign. Surely Councilmembers know better. And I’d like to think their donors not only know better, but want better for our community.

* This is the current threshold for the federal gift tax, which will rise over time to keep pace with inflation. The District has no gift tax.


Why Most Taxpayers Feel They Pay Their Fair Share, But That Others Don’t

April 11, 2016

I’ve just finished a multi-day dialogue with my tax software. As always, I’m grouchy when I get to this point. So, as always, I’m ready to vent.

This year, I was ready even before I’d started keying in figures, shuffling through bills and 1099s, etc., thanks to an action alert from Americans for Tax Fairness.

And it’s fairness that’s on my mind, as I consider what I owe, what I might have, but for some advantages and advantages that only others enjoy.

Corporate Dodges and Intended Breaks

Americans for Tax Fairness seized on what, for obvious reasons, it calls a tax dodge. Seems that Pfizer, the pharmaceutical giant, planned to evade an estimated $35 billion in U.S. taxes owed on profits it’s made overseas.

You may have read about the maneuver — a so-called inversion. A new rule has apparently queered it. But the dozens that are already done deals have enabled corporations to shift profits to others in low-tax countries and then borrow or lend them as if they weren’t gained here.

Many American corporations shield profits they’ve made in this country from taxes without fictitiously relocating. They instead attribute them to subsidiaries — often merely mailing addresses — in jurisdictions that impose little or no tax. The tax havens enable them to collectively avoid an estimated $90 billion a year in federal income taxes.

Last year, we individual filers, who can’t engage in such maneuvers, paid somewhat over $1.5 trillion in income taxes. Corporations paid about 22% as much.

It’s not only the maneuvers that account for their seemingly skimpy share. They can claim diverse tax credits, exclusions and, in some cases, speedier write-offs to reduce their tax liabilities. Fingerprints of special interests all over some of these, as I’ve noted before.

What the American Public Says

No one likes paying taxes, of course. But most of us aren’t much troubled by what we have to pay, according to a Pew Research Center survey. A majority of us, however, are bothered “a lot” by the feeling that some corporations don’t pay their fair share. Nor wealthy individuals.

Tax fairness is in the eyes of the beholder, I suppose. But it’s hard to view our tax system as fair. What those with plenty of money don’t pay, the rest of us must — or live without what the tax revenues could pay for.

Some of both, it seems, since we all endure under-funded transportation systems, lapses in agency enforcement of environmental rules and the like.

And many of us have major concerns about insufficient funding for a host of programs that serve needs we may not have ourselves, e.g., high quality education for disadvantaged students, childcare subsidies, food assistance and other safety net benefits.

Tilt Toward Well-Off Individuals

It’s not only loopholes and preferences deliberately built into the corporate tax system that rankle us. As I indicated, most of us also feel that the individual tax system lets other people pay less than their fair share.

Forty-two percent of the Americans Pew surveyed feel that at least some poor people don’t pay enough. Far more feel that wealthy people don’t pay as much as they should. Very few — only 4% — put themselves in this category, it seems, suggesting the rest of us aren’t bothered by tax breaks that benefit us.

What seems beyond question is that the system is structured to reward certain choices of how to spend and how to get money — choices that far from all of us have.

On the spending side, we’ve got the mortgage interest deduction — the second largest preference in the individual tax code. The federal government will forfeit roughly $77 billion this year so that people can purchase homes — not just one per individual or family, but two, including a yacht.

The benefit to higher-income households, combined with the property tax deduction is, on average, more than four times greater than what the federal government spends to subsidize housing for low-income people.

On the getting side, we’ve got the lower tax rate on income gained by selling stocks and other assets, including those extra homes that qualified for the mortgage interest deduction. Same lower rate on dividends from stocks held for more than a couple of months.

No tax at all on money socked away in special savings accounts for college tuition and related expenses or healthcare costs insurance doesn’t cover. Justifiable as these breaks may be, they don’t benefit people people who need every penny they’ve got to keep food on the table, a roof over their heads, etc.

By and large, low-income filers get few tax breaks — and only if they’re both working and raising children. The largest of these preferences — the Earned Income Tax Credit — can actually increase income (not taxable).

But it does little for workers who don’t have children they’re supporting in their homes for most of the year. So little that the lowest-paid are taxed into poverty — or deeper poverty — because their credit doesn’t even offset what’s deducted in payroll taxes.

These, however, are only workers with Social Security numbers. The EITC does nothing at all for those who don’t have legal authority to work in this country, but dutifully pay taxes on what they’ve earned.

Now these are all preferences (or the opposite) deliberately built into the tax code. We’ve also got at least one gaping loophole — a provision that allows hedge fund managers to pay the capital gains rate on compensation they receive for doing their job.

They collectively save an estimated $18 billion a year. Here too, we pay that much more or lose what those billions would pay for.

Consensus Only on Need for Fairer Taxes

Everybody from left to right agrees that the federal tax code is ripe for reform. No consensus on what a fair system would be, however, as plans Presidential candidates have floated show.

We all, I think, can see how some of those plans would make the system less fair. But I, for one, couldn’t spell out what a fair tax code would look like.

I’m pretty sure that I’d pay more because, animadversions notwithstanding, I claimed all the deductions I could and paid the lower capital gains/qualified dividends rate.

No way to waive that rate. But I could donate the savings to the federal government. I’ll just stick with charities and, feeling somewhat hypocritical, deduction my donations again next year.

 


Hope for Bipartisan Reform of the EITC for “Childless” Workers?

February 25, 2016

Far be it from me to discount bipartisanship. It would be nice to see some at the federal level — on issues that would help poor and near-poor people, among others.

But I’m not as hopeful as some kindred spirits that proposals in the President’s budget could get Republican leaders in Congress on board — notably House Speaker Paul Ryan.

He’s floated a plan for “expanding opportunity in America” — specifically, for Americans stuck on the bottom rung of the income ladder. It proposes, among other things, expanding the Earned Income Tax Credit for childless workers.

The hopefuls see a chance for bipartisanship here. And perhaps there is. Conservatives, after all, want low-income people to work. And the EITC is said to reward work because it provides a tax credit for some variable amount of income earned by working.

It doesn’t, however, truly reward work for childless wage earners. Nor for those who have children, but not living with them for most of the year. Nor for young workers, childless or otherwise.

Together, they’re the only group our federal system taxes into poverty or — and more often — deeper poverty, as a Center on Budget and Policy Priorities analysis shows.

How the EITC Works

The EITC reduces what many, but not all workers owe in income taxes. If they owe less than zero when they claim the credit, they get a refund.

For all eligible workers, the credit kicks in with the first dollar earned. It then rises by a set percent of earnings until a reaches a certain dollar value, cruises there for awhile and then declines, by a set percent, until it reaches zero.

Both the percents and the maximum dollar value depend on whether the filer has children in the home and, if so, how many. The tax structure also favors married couples over singles, but only in the phase-out if they’re childless.

The maximum credit for both is a mere $506. And singles get no credit at all when their countable income is less than what a full-time, year round job at the federal minimum wage pays.

What the President (Again) Proposes

The President’s proposal would expand the EITC in several ways. First, it would change the minimum and maximum ages for claiming it.

At this point, “childless” workers don’t become eligible until they’re 25 years old. And they lose eligibility when they’re over 64, even though many remain in the workforce longer, if they can — especially now that they can no longer get full Social Security retirement benefits until they’re older.

The President would make the eligible age range 21 to 67, the age when workers born in 1960 or thereafter will reach Social Security’s full retirement age — unless forces for so-called entitlement reform succeed in boosting it again.

He would also double the phase-in rate, i.e., the percent of earned income that translates into a larger credit. The maximum credit a worker could claim would almost double. And a worker could get it for longer because the phase-out rate would match the phase-in.

About 13.2 million low-income workers would benefit — both those newly eligible and those eligible now.

What Could Stymie Bipartisan Reform

The structure Ryan proposes for “childless” workers mirrors the President’s. And he too would drop the minimum eligibility age to 21. He’d leave the maximum age the same, but that seems readily negotiable.

What won’t be is the pay-for, i.e., the offsets that will prevent the losses in tax revenues from increasing the deficit.

The new proposed budget doesn’t say specifically what other proposal(s) would offset the losses. We do, however, see various tax reforms that would more than offset them, as well as help pay for direct spending initiatives.

In fact, closing just one tax loophole high-earning individuals can — and apparently do — use to legally game the system would raise more than four times the cost of the expansion. The President’s economists cited this loophole-closer as an EITC expansion pay-for last year.

Ryan’s opportunity plan specifies pay-fors too — all spending cuts. He expressly rejects raising taxes — even, one infers, by closing unintended loopholes.

He’d eliminate what he calls — perhaps rightly, in some cases — instances of “corporate welfare.” But he’d pay for the EITC expansion mainly by ending “programs that don’t work” — and reducing “fraud” in the refundable part of the Child Tax Credit.

Programs he’d eliminate include the Social Services Block Grant and two small programs that aim to get more fresh fruits and vegetables into the diets of young children.

Now, the Social Services Block Grant is challenging to defend with the “hard evidence” Ryan wants — ironically, for reasons that should appeal to him and his Republican colleagues. First off, it’s a block grant — and like most others, under-funded, in part because it’s had no increase for many years.

But the main reason it’s hard to defend — and should appeal — is that it offers states lots of flexibility. So they can invest a bit of money here, a bit there, supplementing their own funds and tapping funds from other federal sources.

How then to prove the effectiveness of SSBG in, for example, providing child care so that parents can work, reducing senior hunger, protecting children and adults with disabilities from abuse, etc.?

Does this mean the program doesn’t work? Of course, not. Nor would what Ryan proposes for the Child Tax Credit prevent costly fraud.

It’s instead what’s sadly familiar by now — requiring parents who claim it to have Social Security numbers. This would deny refunds to low-income undocumented workers — and indirectly, their children, most of whom are U.S. citizens, as if that should matter to someone who professes concern for poverty in America.

Why Bipartisan Reform Only Doubtful, Not Hopeless

It’s not only the specific offsets Ryan proposes, but his whole approach that casts doubt on a bipartisan bill — and subsequent vote — to make work pay for so-called childless adults.

But who knows? A majority of House Republicans and enough in the Senate did agree to a budget deal that converted the time-limited EITC and Child Tax Credit improvements in the Recovery Act to permanent law.

Give them enough of what they want, swallow enough of what you don’t but can live with and we could have a fairer EITC. A lower poverty rate too. Hopes, needless to say, contingent on the results of the upcoming elections.


Congress Does Another Pretty Good Thing

December 21, 2015

No, I’m not referring to the budget Congress just passed. Better than a government shutdown, of course — or what we would have had if Congress hadn’t lifted the spending caps. But more a relief from what could have been than a pretty good thing.

It’s rather the package that will extend expiring tax breaks — most, as usual, with a new end date, but some permanently, i.e., unless and until Congress repeals or changes them.

Many converted from nominally temporary to permanent will benefit businesses or well-off individuals. But poor and near-poor families will also benefit because the improved Earned Income Tax Credit and Child Tax Credit become as permanent as the rest.

Here, briefly, is what this means as a practical matter — and, also briefly, why the bill isn’t plain good, but probably as good as it could be under the circumstances.

More Spendable Income for Working Families

The Recovery Act made two changes in the EITC that benefit working families. It reduced the so-called marriage penalty, i.e., the lower benefit some married couples receive when both have earned income. And it added a higher benefit for those with three or more children.

The Recovery Act also reduced the minimum wage income required to claim the refundable part of the CTC from what was then $12,500 to $3,000, enabling many more low-income parents to get a modest budget boost at tax time.

All these improvements would have expired in 2017. Some 16.4 million people would have fallen into poverty or deeper poverty — mostly the latter, according to the Center on Budget and Policy Priorities’ latest estimates.

And results would have worsened in future years because the former permanent law linked the threshold for claiming the CTC to consumer price inflation.

Urgent Though Not Expiring at Year’s End

One might think that Congress could have waited to deal with the improvements — as it tends to do with extenders. But excluding them from the package would have made preserving them later much tougher.

Because the more tax breaks made permanent, the greater the chance that the improvements would have hung out there alone. Republicans would then have insisted they be fully paid for, i.e., offset by spending cuts or revenue raisers.

But they wouldn’t go for the latter. So they could have forced a choice between a rollback to the pre-improved tax credits and spending cuts.

This might not have proved the only hurdle. As a recent letter from major advocacy organizations warned, the improvements could “essentially be held hostage for other deleterious policy changes.”

Anyone who’s been reading about the policy riders Republicans tried to hang onto the budget bill has some notion of how supporters of the improvements might find those changes too high a price to pay.

Downside for Some Immigrant Families

To no one’s surprise, the anti-immigrant sentiment among some Republicans infiltrated the tax bill negotiations.

One proposal, resurrected repeatedly since 2012, would have denied the refundable CTC to parents who file tax returns using an ITIN (Individual Taxpayer Identifications Number) — the alternative to a Social Security number that undocumented immigrants, among others must used to comply with their legal obligations.

That would have ended the annual income supplement that helps with the costs of raising more than 5 million children — as many as 4.5 million of them citizens, if that matters, as I think it shouldn’t.

At least two other proposals sought to prevent undocumented immigrants from claiming either one or both of the refundable tax credits. Whether these were only floated or actually put on the table only a fly on the wall could say.

Opponents fended them off. But Republican negotiators apparently felt the need to do something hostile to immigrants — if only to get enough of their colleagues on board when the bill came to a vote.

And their Democratic counterparts apparently felt they had to swallow something to get a deal done — and passed. They knew, after all, as did the Republicans, that right-wingers were insisting on a battery of anti-immigrants riders on the budget bill.

For whatever reasons, the final tax package does several things that will disadvantage some immigrant taxpayers.

One provision will deny those who filed with an ITIN but shortly thereafter got a Social Security number from claiming the EITC benefits they could have claimed before if they’d had it. Another will bar retroactive CTC claims in cases where the credit wasn’t initially claimed due to lack of an ITIN.

Still another will translate into law some recent rules that require about 21 million ITIN filers to get a new number and, at the same time, make the process more difficult.

Bottom Line

Even without the anti-immigrant provisions, the bill would be only far better than one that omitted the refundable tax credit improvements.

Progressive advocates and some members of Congress, not only progressives, have proposed further improvements. These will have to wait for another day — and a very different Congress.

Last but not least, the tax cuts alone will cost nearly $629 billion over the next 10 years, according to Joint Committee on Taxation estimates.* And not a penny of the revenue loss is offset. This will surely cramp needed investments.

To say that extensions of nominally temporary tax cuts are never paid for doesn’t make the bill fiscally responsible. This is one reason a majority of House Democrats and six in the Senate voted against it.

But, as CLASP says, “it is highly likely that Congress would have simply extended the business credits without doing anything for working families.”

So to my mind — and not mine only — the bill the President signed represents a major victory for the bipartisan-minded negotiators and for progressive advocates, including grassroots folks who signed petitions, called Congress members and visited them on Capitol Hill — or got in their faces when they were back home.

Something to recall as we head into a new year, with new challenges.

* The total package Congress passed postpones three taxes established by the Affordable Care Act. This makes the cost larger, though by how much we can’t yet know because the delays may or may not become conventional extenders

 

 


Putting Brakes on Runaway DC Tax Breaks

December 10, 2015

The District of Columbia has pretty well recovered from the Great Recession. Not all residents have, of course. And some had no recession to recover from because they were jobless, homeless and the like before it began.

But a fair number do seem to have higher earnings now since tax revenues have increased and are expected to increase further during the next several years.

So barring some unforeseen disaster — or dreadful policy choices — we’re unlikely to see severe spending cuts driven by the District’s need to keep its budget balanced. That doesn’t mean the District has the wherewithal to meet all critical needs, however. Not even close.

For one thing, as I’ve remarked before, the District, like other state and local governments, will have to spend more merely to make up for shrinking federal support.

For another, the District has needs beyond what even less stingy federal funding would cover — affordable housing, new shelters for homeless singles, as well as families, better public education, especially for low-income and/or minority students …. Well, you can fill in the blank as well as I.

So the DC Council should do two things during the upcoming budget season — both under the heading of do no (further) harm.

Stop the Triggered Tax Cuts

The Budget Support Act the Council passed in 2014 includes a provision that makes certain tax cuts recommended by the Tax Revision Commission automatic when projected revenues are sufficiently greater than they were when the budget became final to keep it balanced, despite the losses.*

Basically, the Chairman chose the tax cuts he liked best. Then he ranked those that would have immediately thrown the budget out of whack so that the most preferred would kick in first, then the next and so on.

The priority order itself reflects some dubious preferences — a cut in the tax rate for personal incomes over $350,000, for example, and two increases in the minimum value estates must have to owe any District tax.

But the triggers are to my mind — and not mine only — irresponsible in principle because they deny Councilmembers the opportunity to weigh revenue losses against unmet spending needs on a case-by-case basis.

We’d expect triggers from Red states with governors and legislatures bound and determined to slash spending — and in at least some cases, convinced that tax cuts will stimulate so much growth as to pay for themselves.

And indeed, most, though not all states that have adopted triggers are Red. No economic booms. Google Kansas or Oklahoma budget deficit for specific sorry results.

Fortunately, the District isn’t controlled by officials who take their cues from the American Legislative Exchange Council, which promotes triggers as a way to starve governments of funds needed for services, as well as other laws its Koch brother and other corporate backers favor.

So it seems to me our elected representatives shouldn’t persist in an approach that will privilege tax cuts over services that could do more good for more people.

Stop Administrations From Needlessly Giving Money Away

Four years ago, the Council passed a sensible law to exert some discipline into the process of awarding tax breaks to specific entities or projects. It postponed any Council hearing until the Chief Financial Officer provided an assessment.

Well, the Bowser administration recently moved to give a $60 million property tax cut to the Advisory Board — a large consulting firm that had indicated it might move its headquarters to Virginia. Some commitments on the Board’s part, mostly jobs for District residents.

But the Board would probably hire at least as many residents anyway, the CFO opined. And the annual $6 million more it would have to pay without the cut would “not affect the company’s ability to maintain operations or continue its growth.”

In any event, the CFO said, “research indicates that tax incentives are generally not a critical factor in corporate locational decisions.” The Council rubber-stamped the tax break anyway.

This is hardly the first such tax giveaway. The District has a long history of them — more than I could possibly cite here, even if I could compile the list.

Like me, however, some of you may remember former Mayor Gray’s $32.5 million tax break package for LivingSocial — a bad bet, as it proved, on the company’s growth and new hires.

In this case, the CFO took a pass on whether enticing LivingSocial to locate its headquarters here would have economic benefits. But he again concluded that the company would be able to pay its expenses and sustain its operations without the tax breaks.

And he noted presciently that it had yet to turn a profit, casting doubts even then on benefits the District and its residents would reap. Unanimous approval from Councilmembers anyway.

So clearly, the law isn’t working as intended. And every time the Council approves one of these corporate tax breaks, it encourages other enterprises to engage in the same sort of extortion.

It could take an alternative approach. It could fold property tax reductions (technically, abatements) and other locally-funded tax incentives into the budget for economic development.

Not my idea. But to me, it makes all the sense in the world because tax breaks are a form of spending — hence the term tax expenditures, which is how budget wonks refer to them.

Putting a line item for corporate tax breaks into the budget would compel the administration and Council to weigh the total against other spending options — and force choices later, since the budget would cap the total dollar value of the giveaways.

Neither of these policy shifts would ensure sufficient funding for programs and services that benefit low-income residents — because they’re targeted or because they improve the economy and quality of life in our community.

But the shifts would tend to foster decisions that weigh direct spending needs against spending through the tax code.

* The 2015 Budget Control Act pushed the triggers back to an earlier revenue forecast. So some will kick in even before the Council has a proposed budget to work on.

UPDATE: Very shortly after I published this, the DC Fiscal Policy Institute published a post warning that the District could have to cut spending for next year unless policymakers can find alternative ways to fund “one-time” items in the current budget.