Tax Credits—Rich and Poor

Who Gets the Tax Breaks?

Being a Voice for Low-Wage Workers
Presentation by Michael Evangelist, Center for Economic Progress, on proposed policy changes to the EITC, and the Presidential candidates tax positions. [PDF, 640 KB, posted 7/29/08]

CBPP Report on the EITC [posted 5/4/06]

In his report on tax reform and poverty, Jason Furman of the Center on Budget and Policy Priorities discusses the impact of the Earned Income Tax Credit and ways to improve it. Further, Furman notes the hazards of making the dividend and capital gains tax cuts permanent and the dangerous precedent it may set for making future tax cuts permanent without off-setting their costs.

A Tax Credit or a Handout?[posted 5/3/06]

In this New York Times Op-Ed piece, Dorothy Brown blasts Congress for funding and pushing the IRS to target low-income taxpayers with audits rather than doing the work to simplify the credits to reduce burden and error. She argues strongly against the notion that low-income tax credits are a form of welfare (introduced into our lexicon by Bill Clinton). Interestingly, she never uses the term “EITC”.

The New York Times reveals that President Bush’s investment tax cuts mainly benefit the super-rich (the top one-tenth of the top 1%) [posted 4/6/06]

The super-super rich (those earning over $10 million) benefitted so much they now pay the same tax rate as those earning between $200,000 and $500,0000. Our tax code has become much less progressive! David Cay Johnston, keynote speaker at our last conference, analyzes all the data on these tax cuts as Congress prepares to debate on whether to make them permanent. Click here for the full article.

Senate Passes More Tax Breaks for Wealthy [posted 2/7/06]

An additional $70 billion in tax breaks were approved by the Senate by a margin of 66 to 31 on Thursday, February 2. The $70 billion in tax breaks are not paid for, deepen the deficit and mostly benefit higher income households. The tax cut bill (H.R. 4297) is phase two of the budget reconciliation bill (see story in this issue) that cut nearly $40 billion mostly from services for the low-income. To see how your senators voted: http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=2&vote=00010

Several key differences remain between the House and Senate bills and those differences will have to be worked out in a conference committee:

Size. The House bill contains a little less than $60 billion in new tax breaks, compared to the Senate's $70 billion. Although the original instructions in the budget resolution allowed a $70 billion tax cut reconciliation bill, Congressional budget rules limited the size of the tax bill to $60 billion unless the budget cuts were enacted. Keeping the tax cuts within the reconciliation dollar limits is important because such a package can pass with only 51 votes. Tax cuts exceeding the limit require 60 votes. When Congress considered earlier versions of the tax bill last year, only about $60 billion in tax breaks had the special protections granted by reconciliation (because the budget cuts had not yet been passed.) The House's passage this week of the $40 billion cuts in spending (S. 1932), allowed the Senate to move forward with the full amount of the tax cuts. In addition, the tax reconciliation bills considered last fall included Katrina-related tax breaks that were subsequently passed as part of other legislation. Eliminating the no-longer-needed Katrina provisions freed up additional money for more tax breaks. Observers expect a $70 billion bill to emerge from conference.

Capital gains and dividend rate cuts. The centerpiece of the House tax reconciliation bill would extend for two years a tax break for those who claim capital gains and dividends - which overwhelmingly benefit the wealthy. Even though the provision extends the rate cut for just two years, the federal government would lose $23 billion in revenue over five years and as much as $30 billion over ten years. Households with more than $1 million in income would get 45 percent of the benefits from the capital gains and dividend breaks.

The Senate tax reconciliation bill does not include the capital gains and dividend provisions. When the Senate first considered the bill, Sen. Olympia Snowe (R-ME) threatened to oppose it if the capital gains and dividends pieces were included. It is likely conference negotiators will continue to push for capital gains and dividend rate cuts in the final conference report and will look for ways to include the tax break.

Alternative Minimum Tax. The Senate tax bill includes provisions exempting certain households from paying the alternative minimum tax (AMT). The AMT provisions primarily benefit households with income between $100,000 to $500,000. Less than one percent of the benefits of AMT exemption would go to households with income of more than $500,000. Those same households, in contrast, would get 55 percent of the benefits of the capital gains and dividend provisions. Last December the House passed a separate AMT bill that was not part of tax reconciliation.

Low-IncomeTax Credits

Minimum Wage Bill[posted 2/3/07]

The U.S. Senate has taken up the bill passed in the U.S. House of Representatives that would raise the minimum wage from $5.15 to $7.25 an hour. The following are amendments pertaining to the Earned Income Tax Credit that were proposed to the Senate Minimum Wage Increase bill, S. 2:

1. Amendment 169
Proposed by Sen. Allard (R-CO)
Effect: The amendment would allow the sharing of social security data among government agencies for immigration enforcement purposes.

Actions: We circulated an urgent action alert to oppose this amendment that would compel the IRS to share information with DHS about reported earnings on non-work authorized SSNs and multiple people using the same SSN and thereby, erode taxpayer confidentially. Read the full position paper.

Update: This amendment has been dropped. Thank you to all those called their Senators to oppose this amendment!

2. Amendment 107:
Proposed by Sen. Sessions (R-AL)
Effect: Encourage greater use of the Advanced EITC by imposing additional requirements
Update: This amendment has been dropped.

3. Amendment 108
Proposed by Sen. Sessions (R-AL)
Effect: Authorize the Treasury to study the costs and barriers to businesses if Advanced EITC is expanded to all eligible taxpayers
Update: This amendment was passed.

The minimum wage bill passed 94-3 in the Senate, where an $8.3 billion tax package was added to benefit small businesses. The bill would provide a five year extension on a tax credit for businesses that hire the disadvantaged, and provide expensing and depreciation advantages to small firms. The funding to cover the tax breaks comes from closing loopholes on offshore tax shelters, capping deferred compensation payments to corporate executives and removing the deductibility of punitive damage payments and fines.

The Senate also approved an amendment that would bar companies that hire illegal immigrants from obtaining federal contracts, to encourage companies to participate in an employee identification program that can weed out undocumented workers.

 

A Tax Credit or a Handout? [posted 4/21/06]
An Op-Ed by Dorothy Brown published in the New York Times on April 18, 2006.

Increase the EITC [posted 11/01/05]

Senator John Kerry (D-MA) has introduced a positive piece of legislation to expand the EITC.  S 1824 would increase the credit for married couples (by reducing the "marriage penalty"), single filers, military families who receive combat pay (by making 2004 provisions permanent), and filers with three or more children. Coalition staff are working with Kerry's staff on making EITC increases a reality. If you have comments on the legislation or suggestions for improving it, please email dbose@centerforprogress.org with your ideas. For more information on the Kerry legislation, click here.

 

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