Tax Credits for Working Families

Weekly Round-Up: October 19, 2012

October 19th, 2012

Here are some of the week’s highlights on family tax credit issues. Remember – you can also track daily news coverage throughout the week by visiting our RSS feed, where you can filter both the latest news and our archive by a specific credit and/or state.

  • During Tuesday night’s presidential debate, Mitt Romney elaborated on his tax reform plan by claiming that his intended rate cuts would be paid for by capping the total amount of deductions, credits and exemptions that taxpayers can claim, saying, “in terms of bringing down deductions, one way of doing that would be… say everybody gets — I’ll pick a number — $25,000 of deductions and credits, and you can decide which ones to use. Your Home Mortgage Interest Deduction, charity, Child Tax Credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.” While Romney had previously suggested completely eliminating almost all tax expenditures – including the Earned Income Tax Credit (EITC), Child Tax Credit, and Child and Dependent Care Credit – to cover the cost of his proposed tax cuts, politically, capping tax deductions and credits is a better solution because it would avoid having to wage fights over individual deductions. It’s also better for working family tax credits because the proposed cap would scale back the value of these credits for some working families, rather than eliminate them altogether. Unfortunately, however, a Tax Policy Center analysis reveals that simply capping itemized deductions and credits would not raise tax revenues nearly enough to afford Romney’s intended rate cuts, so calls to repeal family credits may resurface to help generate the needed revenue. (The Christian Science Monitor, The Los Angeles Times 1,2, Tax Policy Center, Think Progress)
  • Meanwhile, an estimate by Congress’s nonpartisan scorekeeper, the Joint Committee on Taxation (JCT), demonstrates both the political and mathematical challenges of financing tax rate cuts by limiting or even ending tax deductions. A JCT analysis contained in a recent letter to Senate Finance Committee leaders Max Baucus and Orrin Hatch examines whether a tax reform option similar to Romney’s could truly generate enough additional revenue to cover the cost of both repealing the Alternative Minimum Tax and cutting income tax rates, as Romney has proposed. The JCT asked how low rates could be cut if it assumed the immediate elimination of all itemized deductions, as well as other base-broadening changes like taxing state and local bonds’ interest and eliminating preferential rates for investment income, both which are not in Romney’s plan but could help offset rate cuts in a real-world plan. While there are some differences between the assumptions underlying Romney’s plan and the JCT analysis, including that expansions to the EITC and Child Tax Credit are made permanent, the JCT study found that it could only afford to cut tax rates by 4 percent before starting to add to the deficit. (The Washington Post, Bloomberg)
  • The Center on Budget and Policy Priorities reviewed recent efforts by Republican leaders in Congress to extend a 2010 cut in the estate tax on roughly 7,000 multi-million-dollar estates, but not a piece of the same 2010 legislation that improves the EITC and Child Tax Credit for 13 million working families with children.  Failing to include the improvements to the Child Tax Credit and EITC in proposals like the one that passed the House in August would push 1.6 million people and 900,000 children below the poverty line,  while putting an average of $1.1 million per taxable estate into the pockets of the wealthiest .3 percent of Americans. (The Center on Budget and Policy Priorities 1,2)
  • Jessica Barba Brown, vice president of program development for Faith in Public Life, explained why proposals to cut tax credits like the EITC and the Child Tax Credit would be devastating to low-income working families. “The tax proposal that was passed by the House…earlier this year is really a devastating blow to many working families. Refundable tax credits are some of the most important anti-poverty programs in our country.” Brown said. “When you talk about tax credits and budgets and deficits, they seem like abstract numbers but they have impacts on people’s lives at the end of the day. These are the difference between someone being able to put food on the table for their kids and going hungry. That’s what’s at stake and that’s why faith leaders are speaking out.” (Odyssey Networks)
  • The Community Advocates Public Policy Institute in Milwaukee recently rolled out a proposal to reduce poverty in Wisconsin by more than half, to a rate below 5 percent. This proposal included reforming the state’s EITC to provide up to $3,500 per worker, and up to $5,000 for working families with children. “The current EITC favors families with children, and disfavors childless adults, many of whom are young men,” said Williams. “This new plan represents a significant increase in the tax credits available to childless adults.” (The Nation)
  • New revenue collection numbers released by the New Jersey Department of Treasury show that collections have improved after several slow months, but are still below budget projections. The revenue numbers have become an increasingly partisan battle in the state as both the state’s EITC and a new property tax credit being pushed by Gov. Chris Christie hang in the balance. Christie and Republican Assembly Leader Jon Bramnick have both reportedly said in recent weeks that they would restore the cut made to the state’s EITC if Democrats in the legislature would pass the property tax credit, but Democrats say that the state can’t afford the credit under such a low budget. (The Wall Street Journal)

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