Download Low-income tax credits - RESULTS Educational Fund

Economic Opportunity for All
Campaign
Tax Policies Can Reduce Poverty and Create
Economic Opportunity
 Basic necessities consume a larger portion of income for lowincome individuals and families than those earning higher
incomes
 Progressive tax policy can and should help people with lower
incomes keep more of what they earn and provide incentives to
earn more so as to help them lift themselves out of poverty
 Low-income tax credits help increase income
o Earned Income Tax Credit
o Child Tax Credit
 Promoting savings helps by giving people an incentive to try and
build assets
o Saver’s Bonus
o Individual Development Accounts
RESULTS’ Economic Opportunity Campaign
 Promote expansions of low-income tax credits that
increase income and lift people out of poverty
o Expand the Earned Income Tax Credit for individuals and
families
o Expand the Child Tax Credit so all low-income families can
benefit
 Promote low-income savings through programs like
the Savers Bonus
 These policies tend to have bipartisan support
because they:
o Support lifting people out of poverty
o Encourage work
o Promote personal responsibility
The Earned Income Tax Credit
 Designed to offset payroll taxes and “reward work” for
those in low-income jobs (began in 1975)
 Largest poverty reduction program in the U.S.
o
In 2009, the EITC lifted 6.6 million people out of poverty
• 3.3 million were children
• Without the EITC, the poverty rate among children would have been
one-third higher
• Lifts more children out of poverty than any other program
 Sliding scale of eligibility
o
o
Eligibility based on earned income
Amount based on income, marital status, family size
 Refundable Credit = tax filer gets a refund if credit is
larger than tax liability, even if liability is $0
Recent Improvements to the EITC
American Recovery and Reinvestment Act


RESULTS and our allies pushed for EITC improvements in
the economic recovery bill
Married couples can now earn more income before the EITC
phases out, which reduces the “marriage penalty”
o Before ARRA, a single low-income worker would lose all or part of the
EITC if he/she married another low-income worker

Families with 3 or more children may now receive an EITC up
to 45% percent of their income
o Before ARRA, cap was 40%, same as 2-children families

ARRA expands the EITC for 2009 and 2010
ARRA Improvements to EITC
Source: Center for Budget & Policy Priorities
Without ARRA, the increased EITC for families with three or more children would not
exist. Also, the incomes where the EITC “phases out” (i.e. decreases) for married
couples filing a join tax return would be lower. These changes ensure that many lowincome families will get a higher EITC and more incentive to find and maintain work.
EITC Improvements Still Needed
Increase the EITC for persons without children
(or children in the household)
o
o
o
2008 maximum credit for HH with 2 kids = $5028
2008 maximum credit for adult with no kids = $457
Many non-custodial parents fall into this category, making it
more difficult to meet child support obligations
Make the EITC improvements in the ARRA for
married couples and large families permanent
o Under current law, they will expire in 2011
Check the IRS Website for More Information
on the EITC and EITC Awareness Day,
January 29, 2010
The Child Tax Credit
• Tax credit designed to offset expenses of raising a
child
• Allows for maximum tax credit of $1,000 per child
• Based on income
o
Phases out at $75K for single parents, $110K for married
parents
• Must earn a minimum income to be eligible
• Partially refundable
o
o
Unlike EITC, CTC is not fully refundable
If credit exceeds tax liability, tax filer gets the lesser of:
 Remaining credit, OR
 15% of income above the minimum income threshold
Problems with the CTC
• Threshold for eligibility
o
A family must earn a minimum income to be eligible for the
CTC (around $12,000 in 2007)
 Anyone below the threshold is deemed “too poor” to qualify
o
Threshold has been also indexed to inflation, so it rises each
year
 Incomes don’t necessarily rise each year (think minimum wage
workers) or do not rise at the rate of inflation
 Makes CTC unavailable for more low-income families each year and it
reduces the credit for others (remember, credit is based on income
above the eligibility threshold)
• Not fully refundable
o
Limits refund for low-income families
Recent CTC Improvements
 Wall Street Bailout Legislation (October 2008)
o
o
o
RESULTS and our allies lobbied in 2008 to get the CTC
threshold lowered
In October 2008, Congress lowered the CTC threshold from
$12,050 to $8,500 (applies to 2008 returns only)
13 million children benefited
• 3 million new kids qualify, 10 million get a larger refund
 American Recovery and Reinvestment Act (February
2009)
o
o
Building on the momentum created in 2008, RESULTS and
our allies pushed for an even lower threshold
Congress lowered threshold from $8,500 to $3,000 for 2009
and 2010
• Another 13 million children will benefit in 2009 and 2010
Improvements Still Needed to CTC
 Lower the income threshold to $0 and eliminate
inflation adjustments
o
o
Allows all low-income families to participate
If Congress will not lower the threshold any further, at very
least make the $3,000 limit permanent and eliminate indexing
 Make the Child Tax Credit fully refundable
o
Would simplify CTC and increase the refund amount for lowincome families
• At the $3,000 threshold, a family must earn at least $9,667
to receive the full $1,000 CTC as a refund. This means
that families below $9,667 get a smaller refund than those
at or slightly above that income
• If made fully refundable, the lowest income families would
receive the full credit as a refund
2010 CTC Legislative Developments
 Jobs for Main Street Act of 2010 (H.R. 2847) passed by
House in December 2009
 Includes a refundable CTC available to families starting with
their first dollar of earnings
 At a cost of $2.3 billion, removes the $3,000 floor for 2010,
cuts taxes for 16 million families, and makes the CTC
available to all low-income working families with children in
2010
 Also provides that such increases in refunds do not count in
determining eligibility or benefits for federal or federal/state
programs such as SNAP (food stamps) or TANF
 Senate Should Take Up in Early 2010
Building Savings and Assets
 Creating savings and wealth is the clearest pathway out
of poverty
 Other non-tangible benefits
o
o
o
Improved household stability: Major illness, job loss, or
marital breakup can lead to sudden income shortfalls. A stock
of assets helps to bridge these periods of financial need,
reducing the chances of disorder in the household.
An orientation toward the future: When people are secure
in the present, they tend to look toward the future. There is
considerable evidence that people who own assets are, by
and large, more optimistic about their ability to succeed.
Enhanced welfare of offspring: Given that parents pass on
their wealth to their children, an effective asset-based policy
for the poor could effectively reduce intergenerational poverty.
Asset Building Strategies
 Saver’s Bonus
o
o
o
o
Low-income tax filer agrees to invest refund into a product
(savings account, U.S. savings bond) right from their tax return
Portion of savings is matched by the government
Can use matched savings for certain things like education,
home purchase, start business, retirement
The key to the SB is that it uses an existing process (tax
returns) to administer the benefit, which can increase
participation and reduces administrative costs
 Individual Development Accounts (IDAs)
o
o
o
Similar to Saver’s Bonus, except person opens account on
their own, not via tax return
Includes financial literacy training
Matched portion again limited to certain things like buying a
home, starting a business, education, retirement
Tax Credit and Asset Building Bills in Congress
 S. 22/H.R. 536: Strengthen the EITC Act
o
Makes EITC changes from the ARRA permanent (expanded EITC for
married couples and larger families)
 S. 985/H.R. 2277: Savings for Working Families Act
o
o
Expands IDA program and financial literacy training
Could allow up to 2.7 million people to participate in IDA programs
 S. 722: Taxpayer Certainty and Relief Act of 2009
o
Makes the EITC expansion for married couples and large families
permanent; make $3,000 CTC threshold permanent
Currently, none of these bills are moving forward in Congress.
However, tax reform is anticipated to be a high priority in 2010.
This is the year that the 2001 and 2003 Bush tax cuts are set to
expire. It is very important that any tax reform enacted
include changes to the tax code that benefit low-income
individuals and families.
Low-Income Tax Credits Laser Talk
• Engage: In 2009, the EITC lifted over 6 million
people out of poverty, half of them children.
• Problem: Low-income tax credits are a way to
help lift and keep people out of poverty.
Unfortunately, many low-income people are shortchanged by the way the tax code is currently
written.
Low-Income Tax Credits Laser Talk
• Inform: First, low-income single workers without
children receive such a low EITC, some end up
paying a large tax bill even after receiving the
credit. Also, recent expansions to the EITC and
Child Tax Credit that have helped millions of lowincome families are only temporary. For
example, 26 million low-income children and
their families will lose all or part of their Child Tax
Credit in 2011 under current law. The CTC also
still remains unavailable for America’s poorest
families.
Low-Income Tax Credits Laser Talk
• Call to Action: Will you speak with Senate Finance
Chairman Max Baucus and ranking member
Charles Grassley/ House Ways and Means
Chairman Charlie Rangel and ranking member
Dave Camp, urging them to:
• Make the recent EITC changes for married couples
and large families permanent
• Triple the EITC for single workers without children,
and
• Lower the Child Tax Credit income threshold to zero
and make it fully refundable (or at the very least,
make the current $3,000 threshold permanent)?
Economic Opportunity Resources
RESULTS
www.results.org
Center on Budget and Policy Priorities
www.cbpp.org
National Community Tax Coalition
www.tax-coalition.org
Center for Economic Progress
www.centerforprogress.org
Center for Tax Justice
www.ctj.org
Tax Policy Center
www.taxpolicycenter.org
Coalition on Human Needs
www.chn.org
Corporation for Economic Development
www.cfed.org
New America Foundation’s Asset Building Project
www.assetbuilding.org
RESULTS/RESULTS Educational Fund
750 First St NE, Ste 1040
Washington DC 20002
RESULTS Economic Opportunity Campaign Contacts:
Meredith Dodson, [email protected], (202) 782-7100, x116
Jos Linn, [email protected], (515) 288-3622
Alan Gold, [email protected], (202) 783-7100, x106
www.results.org