Tax Credits for Working Families, Not Tax Breaks for Wealthy Estates
This tax day, House Republicans are proposing to repeal the estate tax, giving massive tax breaks to some of our nation’s wealthiest families. This windfall to millionaires and billionaires would balloon deficits to give some of the richest households a giveaway they don’t need.
As we mark tax day, we should recognize that the top 0.2 percent of wealthy estates don’t need a tax break. Rather, it’s the millions of hardworking Americans struggling to make ends meet—Americans who could see their taxes go up and their families fall into poverty if Congress fails to preserve and strengthen tax credits for working families.
The upward redistribution from the proposed estate tax repeal is striking. The roughly 5,400 estates to which this tax applies would be given an average tax break of $2.5 million, causing deficits to rise by $269 billion over the next 10 years.
For less than the price of repealing the estate tax, Congress could provide tax relief and boost economic opportunity for millions of families by making permanent 2009 reforms to the earned income tax credit (EITC) and child tax credit (CTC) and expanding the EITC for workers without dependent children.
Two Visions of Tax Reform
|Repealing the Estate Tax
|Strengthening Tax Credits for Working Families
|$269 billion over 10 years
|$118.2 billion over 10 years—making American Recovery and Reinvestment Act provisions permanent
|$120 billion over 10 years—estimated cost of expanding EITC for childless adults and lowering age of eligibility from 25 to 18 years old
|$269 billion for the top 0.2 percent of estates
|$238.2 billion for working families
The EITC and CTC are two of our nation’s most effective antipoverty programs, collectively lifting 9.4 million people in working families out of poverty in 2013. Yet in 2017, three critical improvements to these tax credits will expire, including reforms that reduce the marriage penalty, ensure that larger families get a boost in their EITC, and count more of the earnings of low-wage working families in determining their child tax credit. Allowing these provisions to lapse would raise taxes on 50 million Americans and push more than 16 million people in working families into or deeper into poverty.
Moreover, there is one group of workers that currently receives very little help from the EITC, making it the only group of workers taxed deeper into poverty: workers without dependent children. A father who does not have custody of his kids but pays child support; an older retail worker whose children are grown but who still struggles with basic expenses; a young adult without kids trying to make ends meet on low wages: these workers could work full-time at the minimum wage, and at most they would qualify for just $22 in the EITC under current law.
One of these workers is Jason Jacobs, who works as a para-professional at an Ohio middle school, ensuring that students with disabilities can thrive in the classroom. Yet he earns only about $13,000 a year and receives no help from the EITC because he and his fiancée have no children. He writes, “Each day we wake up hoping that no unexpected costs hit us, like last month when I had to drop over $1,000 in repairs on my truck—something that we are still trying to come back from.”
To reach workers like Jason, Congress should enact a bipartisan proposal to expand the EITC for adults without qualifying children, and also lower the age of eligibility from 25 to 18 so that all low-income working adults can benefit from one of our nation’s most effective antipoverty tools. These reforms would be an important complement to raising the minimum wage in bolstering the economic security of working families.
Building off of recommendations to make the 2009 improvements permanent and expand the EITC for childless adults, my colleagues Rebecca Vallas, Rachel West, and I have recommended several additional ways to strengthen the EITC as a tool for economic mobility in a recent Center for American Progress report.
For example, we propose making workers who qualify for the EITC automatically eligible for the maximum value of the Pell grant, the federal government’s main form of financial assistance to low- and middle-income undergraduates. Taking this step would not greatly increase the number of workers who were eligible for financial aid, since in most cases they would already qualify based on income. Rather it would streamline access to college assistance and make clear that there is a pathway from low-wage work into higher education and training for a better-paying job.
We also propose making available a partial “Early Refund” option, which would allow workers to receive a portion of the earned credit in advance of tax time. While the lump-sum payment of the EITC should remain the default, financial emergencies and mobility-enhancing opportunities don’t always wait until tax time. Enabling workers to access up to $500 of their refund in advance could reduce families’ need to resort to predatory lending products that can precipitate a downward spiral of debt, as well as provide access to funds for opportunities such as a required certification for a new job. Given that the average EITC was $2407 in 2013 – and the average payday loan is just $375 – allowing workers to access even a small amount of their anticipated refund in advance could help provide stability and mobility to many low-wage working families.
On this tax day, rather than showering millionaires and billionaires with another tax break, we should celebrate policies such as the EITC and CTC that have lifted millions of working families out of poverty, and build upon this success by further strengthening these vital credits to pave the pathway to the middle class.
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Melissa Boteach is vice president of the Poverty to Prosperity Program at the Center for American Progress. You can follow Melissa on Twitter at @mboteach.
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