What’s at Stake for DC If the Expanded EITC and Child Tax Credit Die?

August 2, 2012

Yesterday, the House passed a bill to extend the Bush tax cuts that’s virtually identical to the Senate Republicans’ recently defeated bill — this after defeating an alternative much like what the Senate passed.

What will happen next is anybody’s guess. What will happen if the Republicans finally prevail on the issue of the refundable Earned Income Tax Credit and Child Tax Credit isn’t — thanks to some great number-crunching by Citizens for Tax Justice.

As I earlier wrote, the Republicans don’t want to extend the tax credits in their current forms, i.e., with expansions originally made by the Recovery Act.

Without them, parents with more than two children wouldn’t get as large an EITC credit as they can now. And married couples would again incur a significant “marriage penalty.”

The refundable Child Tax Credit wouldn’t be available at all for very low-income working families. Refunds would be much smaller for many others because they’re a percent of income above a threshold that would rise from $3,000 to about $13,300 initially — and keep rising as time went on.

CTJ provides state-by-state breakouts for some of the impacts. Here’s what it tells us about the District of Columbia, with some additional observations from me.

In 2013 alone:

  • Nearly 7,940 District families, including an estimated 11,673 children, could no longer get any Child Tax Credit refund.
  • These families, plus those who could still claim the credit would collectively lose $7.6 million — a hit to not only their budgets, but our local economy because there’d be that much less for them to spend.
  • About 8,285 families, including 24,435 children, would lose some portion of their federal EITC.
  • These losses would total $5.3 million.

Families would also lose out because the District’s own EITC is linked to the federal. Taxpayers can get 35% of whatever their federal credit is — and reimbursements if claiming the credit brings the taxes they owe to less than zero.

Rough back-of-the-envelope calculation suggests that total EITC losses could be well over $7.1 million.

In 2010, 1.6 million more people would have fallen below the poverty line if the Recovery Act hadn’t expanded the EITC and Child Tax Credit, according to analyses by the Center on Budget and Policy Priorities.

Hard to believe we wouldn’t have more District families in poverty if Congress extends the credits in their earlier, more restrictive forms.

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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.


Food Stamp Benefits Will Drop 10 Percent If Congress Doesn’t Undo Cuts

January 23, 2012

As many of you probably know, the Recovery Act increased the maximum food stamp benefit by 13.6%. For a family of four, this has meant as much as $80 a month more for groceries.

The boost was originally supposed to last until the increase was no greater than the cumulative annual increases in food price inflation. That was expected to happen no sooner than some time late in 2018.

Then came the need to extend two expiring parts of the Recovery Act that provided states with some urgently-needed fiscal relief. The bill couldn’t get through the Senate without a pay-for, i.e., some budget changes that would fully offset the costs.

The Democratic leadership ultimately decided to offset nearly half the costs by moving the end date for the food stamp boost back to April 2014.

Next things you know, there was a need to pay for the reauthorized Child Nutrition Act. And the Senate decided again to tap food stamp benefits. This time it lopped five months off the already-foreshortened boost.

The President’s proposed budget for this fiscal year would have put the five months back. But his budget was effectively dead on arrival in Congress.

So as things stand now, food stamp benefits will revert to what they’d have been if adjusted only for inflation in November 2013.

The Congressional Research Service estimates the initial per person loss at somewhere between $10 and $15 a month — an average of about 10%.

This might not seem like a lot. But as I’ve written before, food stamp benefits are egregiously low, even with the boost.

We’ve got new evidence from the U.S. Department of Agriculture itself.

In 2010, it reports, 41.5% of households that got food stamp benefits had “very low food security.” This means that at least one member of the household sometimes had to skimp on meals or skip them altogether because there wasn’t enough money for food.

Now low-income families may have to get along on considerably less. And our anemic economy may lose the biggest bang-for-the-buck stimulus we’ve got.

The Food Research and Action Center has launched a grassroots campaign to get the cut-off months restored, along with a now-expired suspension of a targeted time limit on food stamp benefits.

It has an online letter we can send to the President asking him to restore the two Recovery Act measures as part of his proposed Fiscal Year 2013 budget.

It also encourages us to weigh in with our Members of Congress.

Not much use if we live in the District of Columbia. But we disenfranchised souls can still do our bit by passing the word along to friends and relatives who live anywhere else in the U.S.


Widely-Reported Flat Poverty Rate May Be Deceptive

February 17, 2011

A New York Times editorial cites one of the Census Bureau’s alternative poverty estimates as evidence that “the safety net, fortified by stimulus” kept the number of people in poverty from rising in 2009.

For this, it relies on an analysis by the Center on Budget and Policy Priorities — the same one I used to arrive at a similar, though more cautious conclusion.

“Sorry,” says Shawn Fremstad, Director of the Inclusive and Sustainable Economy Initiative at the Center for Economic and Policy Research. “Poverty really did increase in 2009.”

True, the expanded food stamp benefits and tax credits that were part of the economic recovery act may have kept poverty from increasing as much as it would have otherwise. But they didn’t offset the impacts of massive job losses and related losses of health insurance.

According to Fremstad, the alternative poverty rate didn’t go up in part because the alternative poverty threshold that produced the no-increase result went down. This, he says, was also true for the threshold used to produce the official poverty rate, but the decline was smaller — slightly over a third of a percent, as compared to 1%.

The gap reflects differences in the data sets Census uses to establish the thresholds.

As I’ve written before, the official threshold is set at three times the early 1960’s cost of the U.S. Department of Agriculture’s Economy Food Plan, adjusted for inflation. The alternative threshold at issue is instead tied to the amount that moderate-income households spend on housing, utilities and food.

When the housing market tanks, as it certainly has, the alternative threshold won’t keep up with the overall inflation rate — even actually decline, as it did in 2009. This could boost some people above the cut-off, though they were as income-poor as those who fell below it were in 2008.

But if their housing costs were actually lower, wouldn’t their resources come closer to covering their basic needs? For the purposes of the poverty measure, that depends on what counts as a basic need.

Which brings us to Fremstad’s second point. The no-increase alternative measure doesn’t fully account for medical costs. Instead, it adjusts only for out-of-pocket medical expenditures, e.g., deductibles and co-pays.

Sounds reasonable enough until you consider what can happen when people lose health insurance, as 4.4 million did in 2009.

Some will be well enough off to pay for essential health care costs, notwithstanding the bigger drain on their resources.They’ll seem to be poorer because the measure picks up their costs.  Others will forgo care. They’ll seem to be relatively better off, though they could well be poorer than those who continue to pay for care.

Fremstad says the Census Bureau actually did publish some alternative poverty measures that include medical expenses, rather than just out-of-pockets. These produced higher thresholds than in 2008 and somewhere between 1.1 million and 1.8 million more people in poverty.

Still less than the 3.74 million in the official estimate, but enough to suggest that the poverty rate didn’t stay flat — if the test is whether people could afford essential expenditures.

Lastly, Fremstad notes that the Census Bureau counted the full value of refundable tax credits as 2009 income, even though “nearly all” the families who gained from the expanded Earned Income Tax Credit and Child Tax Credit got their benefits as a lump sum in 2010, i.e., after they filed their 2009 tax returns.

So they were no less poor in 2009 than they would have been with no refunds at all.

None of this is to say that CBPP erred in finding that major safety net programs, including the expansions effected by the recovery act, kept some millions of people out of poverty. Nor that the Times is wrong in saying that Congress should “take a good look at those numbers … before it commits to any more slashing and burning.”

But it does, I think, show how urgently we need a single, reliable poverty measure to tell us how many poor people there are — and who they are — at any given time and over time.

As the Times editorial indicates, this is not just of interest to economists and others of a wonkish bent. It’s got real world consequences for policymaking and for a still-unknown number of poor people affected by the policies made.