Republicans Say No Tax Increases, Except for Low-Income Working Families

July 30, 2012

As I remarked earlier, Republicans in Congress don’t actually want to prevent tax increases for everybody.

The votes in the Senate last week confirm this. And the upcoming vote in the House almost certainly will as well.

The Republicans — Mitt Romney included — are dead set against increases for the wealthiest 2% of households — those who’d pay more if the two top tax brackets reverted to their pre-Bush levels.

They’re bound and determined to preserve the huge estate tax giveaway — an additional $1.1 million, on average, for heirs to the wealthiest 0.3% of estates.

But they’re opposed to extensions of the current Earned Income Tax Credit and Child Tax Credit — both expanded by the Recovery Act and then extended, in their current forms, as part of the December 2010 tax cut/unemployment insurance deal.

These tax credits, they say, were temporary stimulus measures. “Stimulus” is, as we know, a pejorative when used by Republicans, who are heavily invested in claiming the Recovery Act failed.

The rest of the Bush tax cuts were also nominally temporary and initially sold as a stimulus. But this is nit-picking, I suppose.

What ought to concern us now is what will happen to low-income families if the Republicans get their way.

Citizens for Tax Justice has a new brief that answers this question — though not entirely — both for the nation as a whole and for each state and the District of Columbia.

Refundable Tax Credit Basics

As you probably know, the EITC is a refundable tax credit available to low and moderate-income working families.

In other words, if the credit, plus deductions and other credits they can claim leaves the amount they owe at less than zero, they get a check for the difference from the Internal Revenue Service.

The credit they get — thus the reimbursement, if any — phases out until it disappears. At what income level depends on family structure.

When we talk about the Child Tax Credit in this context, we’re actually talking about a technically separate additional credit that’s partially refundable.

Parents can get up to 15% of their earnings refunded, but only if they’ve earned more than a set minimum. Both the credit itself and the refundable amount are capped at $1,000 per child.

Expiring Recovery Act Improvements

Before the Recovery Act, the EITC provided no additional credit for families with three or more children. And its structure imposed a severe “marriage penalty” because the phase-out was the same for individual filers and couples filing jointly.

The Recovery Act added a tier for larger families and a separate phase-out schedule for the joint filers.

The refundable Child Tax Credit could be claimed only by parents with incomes over $12,050* — and only for earnings above this amount.

So it wasn’t available for the lowest-income families at all. And refunds were well below the $1,000 maximum for those who didn’t earn much more than the threshold.

The Recovery Act dropped the threshold for claiming the credit to $3,000 — thus also the point at which the 15% starts to kick in.

What No Extensions Would Mean

If the two tax credits revert to their pre-2009 forms, 13.6 million families, including 25.7 million children, would lose, on average, $843 in 2013 alone, according to the CTJ brief.

But losses for some would be considerably greater.

For example, a married couple with three children and earnings at the estimated 2013 federal poverty line would lose $1,934 — nearly 7% of their income — due to the combined changes in the EITC and the CTC.

A single mother with two children and a full-time minimum wage job would get $1,552 less if the Child Tax Credit reverts to its pre-2009 threshold. That’s more than five weeks of her pay.

Additional Losses

The EITC estimates reflect only losses directly due to changes in the federal tax code.

Twenty-three states and the District have their own EITCs — virtually all a percent of what their residents can claim on their federal returns. All but three of these are fully refundable — just like the federal EITC.

So many families who lose all or some portion of their federal EITC would lose out on their state taxes too. Still more losses in a couple of local jurisdictions because they’ve got EITCs too.

* Before the Recovery Act, the threshold was linked to a cost-of-living index, like many other key parts of the income tax code. CTJ says the threshold would be $13,300 next year if Congress doesn’t extend the refundable Child Tax Credit as-is.

Income Ladder Hard to Climb If You’re Born at the Bottom, New Report Shows

July 26, 2012

Many news stories and opinion pieces on the latest report from the Pew Center’s Economic Mobility Project — as well there might be.

Because “pursuing the American dream,” as the report is entitled, could be as rewarding as chasing a will o’ the wisp — especially for those born to low-income parents and most especially of all if they’re black.

At the very least, the report gives the lie to our “rags to riches” story. It’s “more of a Hollywood fairytale than an actual reality,” says Ethan Gelling at the Corporation for Economic Development, echoing the Pew project manager.

I think we need to parse the data into two separate issues, as the Pew analysts also do.

One is economic mobility as measured by movement up or down the quintiles into which income is commonly divided.

As the Pew analysts say, economic growth — especially at the top — puts the major rungs on the income ladder further apart. Obviously harder then to climb from one to another.

That’s how we can have what, at first blush, seem two contradictory findings. On the one hand, 93% of adults in the bottom fifth have family incomes higher than their parents did. On the other hand, only 57% move up into a higher fifth — and only 13% into one of the top two fifths.

Some argue that the root cause, i.e., the grossly disproportionate distribution of the wealth our economy generates, is bad in and of itself.

Rakim Brooks at Demos, for example, warns that the public as a whole loses trust in institutions “when it begins to associate the rich with the fortunes of the country.”

Others have said that income inequality is partly responsible for the credit crunch so many households now find themselves in.

People, they say, often define their wants upward, based on what they see richer folks have. They buy — or rather, make down payments on — houses they can’t afford. They put all sorts of “status-defining” goods on credits cards — enormous flat-screened TVs, designer accessories, etc.

I’m rather more preoccupied with the second issue. Do people in the bottom fifth have enough to live on, plus a modicum of what the Pew analysts call wealth and some others refer to as assets?

Do they, in other words, have a reserve for costly emergencies? A cushion against plain old hard times? Some resources to give their children a good start in life?

The answer from the Pew project is a resounding No.

The median income of families in the bottom fifth was a paltry $19,202 in 2009 — nearly $2,850 below the federal poverty line for a family of four.

And their median wealth, i.e., assets like home equity, money in the bank, a car, was just $2,748 — about $4,690 less than the bottom fifth had a generation ago.

The two figures are, I assume, closely related. If you’re, at best, making barely enough for basic needs, you’re not squirreling away money for a rainy day — let alone investing in mutual funds and the like that will, in the long run, make your nest egg grow.

Why families in the bottom fifth are in such bad straits is a much more complex question. Panelists at a recent all-day conference co-hosted by Demos and partners went at it from many angles.

I’ll mention here only what seemed one broad consensus. A college education — at the very least, enough to earn an associate’s degree or certificate — is a big part of the solution.

Yet, as we know, college is getting very expensive. Pell grants, which the lowest fifth could qualify for, rarelyt cover the costs — and now have new restrictions that tend to rule out self-supporting work during enrollment.

I don’t suppose I need to say anything about loan burdens — except perhaps to note that they surely seem especially formidable for potential students in the bottom fifth, whose prospects for moving up the income scale are iffy, at best.

Yet the Pew figures indicate that their families can’t help them.

Nor, indeed, will the parents all have the resources to provide what their infants and toddlers need to do well when they start school, e.g., a healthful diet, high-quality child care, time to read to them, take them to the zoo, etc.

Fewer than half of poor children are “school ready” when they start kindergarten, according to a study from the Brookings Institution. Three-quarters of children in families with moderate and high incomes are.

And when you start behind, you tend to stay behind, as some Pew figures on reading skills show.

Not surprising then that the dropout rate for low-income students is five times the rate for students from high-income families.

This is one way that income inequality passes from generation to generation. Not just inequality, but poverty too.

More Doubling Up In Housing, Especially By Families

June 17, 2010

I recently wrote that we’ve no idea how many people are living doubled up with friends or relatives. Still true for the District of Columbia, but not for the nation as a whole.

The National Alliance to End Homelessness has issued a brief on doubling up during the 2005-8 period. Doubling up here means “living in a housing unit with extended family, friends or other non-relatives due to economic hardship,” which NAEH defines as “earning no more than 125% of the federal poverty level.” In 2008, that meant a maximum of $13,000 for a single individual and $22,000 for a family of three.

We learn some interesting things. For example, in 2008:

  • More than 4.8 million low-income people were living doubled up–5% more than in 2005.
  • Nearly three-quarters of them had incomes below the federal poverty line.
  • A third of them were in deep poverty, i.e., living at least 50% below the FPL.
  • The percent of doubled-up people who were in families had increased by 8.5%, to somewhat over 2.1 million.
  • Yet the percent of families doubled-up had increased by 3.5%–to just under 800,000. So it would seem that more family members were living together doubled up.
  • While more single individuals than families were living doubled up, the percent increase for individuals was much smaller–less than 2%.

Doubling up is certainly preferable to living on the street or in an emergency shelter. But, as NAEH says, it’s often a prelude to literal homelessness.

According to the U.S. Department of Housing and Urban Development’s Annual Homelessness Assessment Report for 2008, 25.8% of single individuals and 42.3% of families who weren’t homeless before they entered a shelter or transitional housing had stayed the night before with family or friends.

Perhaps the family member or friend had agreed to house them for only a night or two. Perhaps accommodating them had become too inconvenient. Perhaps frictions arose, as they can among any people living together. Perhaps everybody got evicted.

We see some of these risks of homelessness in other NAEH figures.

  • In 2008, more than 1.7 million doubled-up people (34.6%) were in households with severe housing burdens, i.e. paying 50% or more of their income for rent.
  • Of these people, 22%–somewhat over 1.3 million–were living in over-crowded conditions.
  • Both the number with severe housing burdens and the number in over-crowded conditions were higher in 2008 than in 2005.

What I would guess these figures reflect are the combined impacts of the onset of the recession and the accelerating shortage of affordable rental housing for low-income people. If so, then we would expect more recent figures to be worse.

Last year’s HEARTH Act, which reauthorized homeless programs administered by HUD, expanded the definition of “homeless” to some doubled-up families. The NAEH brief says that communities “will now serve them through their homeless assistance programs.”

Don’t we wish. Here in the District, the homeless services program seems unable to cope even with all the families who’ve got no place to live at all. And with budget-slashing across the country, I doubt many other programs are ready to take on more.

Low-Income Children At Risk As Congress Takes Up Tax Cut Extensions

May 10, 2010

Back in 2001 and again in 2003, the Bush administration pushed through a package of tax cuts purportedly to jump start the economy. Some of these benefited only high-income households–the phase-out of the estate tax, for example, and reductions in the capital gains and dividend tax rates. Others provided some tax relief for middle-income households as well.

In the long run, the cuts would have had an enormous impact on the deficit. So Congress finessed the issue by enacting them for only 10 years. The assumption, of course, was that no Congressional majority would let them all die. And the current Congress certainly won’t.

The issue rather is which tax cuts will be extended–and, in some cases, whether the extensions will be based on the 2001/3 legislation or on changes Congress made as part of the American Recovery and Reinvestment Act (the economic stimulus package).

Several of these changes made a big difference to low-income families. One of them was a lower threshold for claiming the Child Tax Credit. Even before ARRA, this credit was the largest federal cash assistance program for children.

Unlike the better-known Earned Income Tax Credit, the Child Tax Credit is only partially refundable. And workers have to earn a minimum to qualify for the refund. The credit phases in from this minimum.

Under the 2001 Bush tax cuts, the minimum was set at $10,000, annually adjusted for inflation. Above this amount, parents received 15 cents for every dollar earned, up to a maximum of $1,000 per child. ARRA dropped the threshold to $3,000, making the tax credit available to very low-income families.

If Congress reverts to the 2001 version, the threshold will rise to about $12,850. The Center on Budget and Policy Priorities reports that low-income working families with a total of 7.6 million children would lose their entire tax credit.

But because the refund is pegged to dollars above the minimum, families with considerable higher incomes would be affected as well. Those who stand to lose most would be those with incomes between the new $12,850 threshold and $16,333. Included here would be numerous families with a full-time, minimum wage worker.

CBPP estimates that 600,000 children would fall into poverty. An additional 4 million already-poor children would fall into deep poverty, i.e., below 50% of the federal poverty line. The current FPL for a family of four is just $22,050.

Preserving the expanded Child Tax Credit would be consistent with the long-standing, bipartisan interest in promoting work. It would also help address what are likely to be ongoing pressures on the safety net. And, like other benefits, it would put money into our economy, since low-income workers perforce spend most of what they get.

A better course, however, would be to drop the threshold to the first dollar earned, as is the case with the EITC. This further expansion was part of the jobs bill the House passed in December. So it stands at least a fighting chance there. The Senate, as always, is a question mark.

You who have voting representation in Congress can support the extension and further expansion of the current Child Tax Credit by using an editable letter I’ve created on

We who live in D.C. will still, alas, have to pass the message along to our enfranchised connections. Please do.