Recently in Income and Work Supports Category

The House Energy and Commerce Committee plans to mark up legislation next week that would create a "cap and trade" program to reduce the emission of gases that cause global warming ("greenhouse" gases). While President Obama favors auctioning off permits to pollute and then using the proceeds largely to offset the resulting costs for consumers, the Energy and Commerce Committee seems ready to give a large portion of those permits away to utility companies for free.

Why "Cap and Trade"?

The idea behind a cap and trade program is that the federal government could cap the overall amount of greenhouse gases that can be emitted into the atmosphere (and reduce that cap each year) and allow market forces to determine how the reduction in emissions can be made most efficiently.

For example, if a manufacturer finds that it can eliminate greenhouse gas emissions at its facilities very cheaply, it can then sell permits it doesn't need to another company that finds emissions reductions to be prohibitively expensive. The overall reduction in emissions would probably come with less costs to the overall economy than would be the case if the federal government simply mandated every company to reduce emissions by a set amount.

Impact on Consumers

Greenhouse gases are produced by the burning of fossil fuels like coal to provide electricity, and also by burning fossil fuels like petroleum to transport nearly every product we buy. This means that limiting the overall amount of greenhouse gases that can be emitted into the atmosphere could increase the costs of just about all consumer goods. If implemented properly, this would, in turn, provide new incentives for manufacturers, consumers, and energy companies to become much more energy efficient.

The overall added costs to consumers could be offset through refundable tax credits (an approach favored by President Obama and the House Ways and Means Committee). The result would be that energy and energy-intensive services and products would be more expensive relative to other things, but the overall buying power of consumers would not be diminished. As the Congressional Budget Office has pointed out, this is particularly important for low-income people, because they are forced to spend a larger portion of their income (or all of their income) on consumption and will therefore feel a larger impact.

The CBO has also explained that the cost increases for consumers are likely to occur whether the emissions permits are auctioned off to companies or simply given to the companies for free. Greenhouse gas emitting companies would be able to charge higher prices either way as a result of the cap. President Obama proposed in his budget outline that all of the emissions permits be auctioned to companies so that the resulting revenue can be used largely for a tax rebate (an extension of his Making Work Pay Credit) that would offset the increased costs for consumers.

The Center on Budget and Policy Priorities has analyzed the sorts of steps that can be taken to offset these regressive impacts, which would involve tax rebates for most people but would also require boosting other existing programs for people who would not be reached by tax rebates.

Energy and Commerce Committee Moving in the Wrong Direction

Henry Waxman (D-CA), chairman of the Energy and Commerce Committee, and Edward Markey (D-MA), chairman of the subcommittee handling the issue, have put forth legislative language that currently does not address whether all the permits would be auctioned or not. But media reports indicate that they are currently negotiating language that would give away as much as 40 percent of the permits to utility companies, which would be required to pass on savings to their customers.

There are many, many problems with this approach. To take just a couple: Less than half of the increased costs that consumers would face as a result of cap and trade would come from higher utility bills. Blunting the effects of cap and trade for electricity would force larger greenhouse gas reductions in other energy-intensive parts of the economy, which might raise the total costs of reducing emissions.

The President was right to propose that 100 percent of greenhouse gas emission permits should be auctioned off rather than given away for free. Hopefully, the cap and trade program that emerges will be much closer to what the President outlined.

New Data from Citizens for Tax Justice Shows that Many Survey Respondents Saying Income Taxes Are Too High Will Pay No Income Taxes for 2008

A recent Gallup poll found that 61 percent of respondents felt that the federal income tax they will have to pay this year is "fair." When asked about the specific amount of federal income taxes they pay, just over half felt they pay the right amount or too little.

Fewer than half of those polled said they thought their federal income taxes are "too high." It appears, however, that some of these respondents are basing their answers on the right-wing, anti-tax propaganda they've heard rather than their own income tax liability. A new report from Citizens for Tax Justice finds that many of the respondents who say they pay too much are likely to owe no federal income taxes at all, suggesting that education about the tax system could change their views.

Read the report.

New Data from Citizens for Tax Justice Shows that the U.S. Tax System Is Not as Progressive as You Think

Many politicians, pundits and media outlets have recently claimed that the richest one percent of American taxpayers are providing a hugely disproportionate share of the tax revenue we need to fund public services. New data from Citizens for Tax Justice show that this simply is not true. CTJ estimates that the share of total taxes (federal state and local taxes) paid by taxpayers in each income group is quite similar to the share of total income received by each income group in 2008.

- The total federal, state and local effective tax rate for the richest one percent of Americans (30.9 percent) is only slightly higher than the average effective tax rate for the remaining 99 percent of Americans (29.4 percent).

- From the middle-income ranges upward, total effective tax rates are virtually flat across income groups.

Read the fact sheet.

A new report from Citizens for Tax Justice answers many of the questions that are frequently asked about taxes during this time of year and clears up the old myths that are still accepted by many as fact. Here is just a sample of some of the questions that are answered:

Question: Does President Obama plan on raising our taxes?

Question: There might be cyclical downturns and upturns in the economy that no one can control, but don't tax cuts help us climb out of downturns a little faster?

Question: What are "tax havens" and why are some people in an uproar over them?

Question: What does it matter to me if someone else is hiding their income from the IRS?

Read the report.

Earlier this week, the National Women's Law Center released the April 2009 update to its report, "Making Care Less Taxing," which describes available state and federal child tax credits and dependent care tax credits, analyzes how these credits help families, and discusses how they can be best designed.

The Center has been instrumental in providing information to help federal and state lawmakers find ways to support families and devotes this annual report to the often forgotten role that tax policy plays.

The report includes information on changes made to state and federal child and dependent care credits in 2008, including:

- Previously legislated changes to existing child and dependent care tax provisions in Oklahoma, Georgia and Louisiana that took effect for tax year 2008;
- Changes to the definition of "qualifying child" that affect the federal child and dependent care credit; and
- Highlights of new IRS regulations on the definition of "custodial parent" as it relates to separated or divorced parents who claim the federal child and dependent tax credit.

The National Women's Law Center also has resources for parents, advocates and service providers about the tax credits available for families at the federal level and in every state.

The U.S. House of Representatives and the U.S. Senate both approved budget resolutions on Thursday that move Congress a step closer to enacting President Obama's agenda, without being quite as bold or explicit as the budget outline released by the President in late February. Both resolutions would spend about $3.5 trillion in 2010 and include non-binding, but important, provisions affecting spending and revenues in years after that. As lawmakers from both chambers leave Washington for their spring recess, behind-the-scenes negotiations will likely pave the way for a House-Senate conference to take place upon their return to iron out the differences between the two resolutions. On some key issues like estate tax and health care, the House has made wiser choices that will hopefully be maintained in the final budget resolution.

The basic thrust of many of the tax policies embodied in the budget resolutions mirror the President's proposals. Both assume the extension of the Bush income tax cuts for everyone except taxpayers with incomes above $200,000 (or $250,000 for married couples). Taxpayers above these thresholds are affected by the top two income tax rates, which would revert to 36 and 39.6 percent. Both resolutions would extend the "AMT patch," a measure that increases the exemptions from the Alternative Minimum Tax to ensure that most taxpayers are not affected by it. (The chambers differ on the extent to which the costs of the AMT patch will have to be offset with revenue-raising measures in the future.)

The resolutions do not follow the President's proposals on certain issues. For example, President Obama proposed that the income tax cuts aimed at working families and included in the recently-enacted stimulus bill be made permanent. The resolutions would make some of these permanent, like the expansion in the child tax credit and the American Opportunity Tax Credit for higher education.

But they would not make permanent the Making Work Pay Credit, one of Obama's signature tax policies. Neither do they include any specific language to create a "cap and trade" program to reduce greenhouse gas emissions, which, in the President's proposal, would produce the revenue needed to offset the costs of the Making Work Pay Credit and other energy initiatives.

Similarly, the resolutions do not include language laying out how Congress will pay for health care reform. (The President's budget outline included a reduction in the benefits of itemized deductions for the rich to partially fund health care reform.)

None of this means that Congress will not act on these proposals of the President's. The resolution includes language allowing for deficit-neutral legislation in these areas without specifying how money will be spent or how it will be raised.

Congress's next important test involves settling the differences between the House and Senate resolutions. When it comes to revenues raised to pay for health care or revenues raised from the estate tax, hopefully the choices made by the House will be maintained in the final budget resolution. See the following Digest articles for more.

Estate Tax: Senate Approves a Break for Millionaires that Leader Reid Calls "So Stunning, So Outrageous"

Reconciliation for Health Care Reform: House Moves to Stop Senators' Obstruction of Measures with Majority Support

House GOP's Alternative Budget: Poor Pay More, Rich Pay Less, Stimulus Repealed and Government Shrinks

When anti-tax activists and lawmakers complain that Congress and the President are pursuing policies that will cause taxes to be too high, the first question anyone should ask is: Compared to what? What exactly is the alternative to allowing the Bush tax cuts to end (at least for the rich) and finding new ways to raise revenue?

This week the House GOP showed us what the alternative is and it's frightening. On Wednesday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions approved by both chambers last night. His proposal is apparently an update of the plan that House GOP leaders introduced last week and is different in some key respects.

The revised House GOP budget plan would move towards cutting and privatizing Medicare, convert Medicaid into limited block grants to states, and even cut Social Security benefits for some retirees. The plan would deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs by refusing to adjust the budgets of these programs for inflation and population growth for five years. The House GOP plan would repeal the recently enacted economic stimulus law (the American Recovery and Reinvestment Act of 2009, or ARRA) a year before its expiration at the end of 2010.

A report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

Yesterday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate right now. His proposal is apparently an update on the plan that House GOP leaders introduced last week and is different in some key respects.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

Yesterday, the Republican leadership in the U.S. House of Representatives released the outlines of a tax and spending plan that they argue is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the President's plan and finds that:

• Over a fourth of taxpayers, mostly low-income families, would pay more in taxes under the House GOP plan than they would under the President's plan.
• The richest one percent of taxpayers would pay $100,000 less, on average, under the House GOP plan than they would under the President's plan.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the President's plan, would cost over $300 billion more than the Obama income tax cuts in 2011 alone.

Read the report.

This week, Citizens for Tax Justice updated its recent report on the tax proposals in the President's budget outline to include estimates of the proposals' impacts on different income groups in every state. The new state figures examine the proposed cuts compared to current law and also compared to the baseline that the Obama administration uses in presenting its budget figures. The figures show that, whichever baseline is used, the vast majority of families in every state will get a significant tax break.

Read the report. (State-by-state figures are in the final appendix.

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report

CTJ has long argued that some tax cuts could have a chance of effectively stimulating the economy -- if they are extremely targeted to poor and working class families. Several tax credits meeting this criterion were included in the House and Senate stimulus bills, although the details differed. CTJ released state-by-state fact sheets showing how families with children would be impacted by these tax cuts, and in many states families would gain between $800 and $1,000 in 2009 alone. The conference agreement does include these provisions, although some of them are scaled back somewhat.

1. Making Work Pay Credit (MWPC)

This was originally proposed by Barack Obama during his presidential campaign as a refundable tax credit of $500 for working people, or $1,000 for couples. Technically, the credit would be capped at 6.2% of earnings up to $8,100 (or twice that for married couples), meaning this credit would be the equivalent of a refund on Social Security taxes paid on that amount of earnings. The House and Senate bills both included this and only differed on the income limits and some other details. The conference agreement, however, limits the MWPC to $400 for singles and $800 for married couples. The credit will also be dribbled out over time through a reduction in withholdings, since some policymakers have decided that simply issuing checks (as was done with the rebate checks sent to households last year) results in families saving the money, which will not stimulate the economy immediately.

2. Expansion in the Earned Income Tax Credit (EITC)

Currently, low-income workers with no children can sometimes receive a very small EITC equal to a maximum of 7.65 percent of eligible earnings, while the maximum EITC for families with children is 34 percent for those with one child and 40 percent for those with two or more children. Under the House and Senate bills, families with three or more children could receive a benefit equal to a maximum of 45 percent of eligible earnings. The maximum benefit under current law is phased out at an income level that is higher for married couples than for singles. The bills would increase that difference, further reducing the "marriage penalty" in the EITC. These changes are included in the conference agreement. The total cost of these changes to the EITC is about $4.7 billion, which is much less than the cost of other provisions and this probably accounts for their survival in the final agreement.

3. Making the Refundable Portion of the Child Tax Credit (CTC) More Readily Available for Poor Families

Currently a parent who earns less than $12,550 in 2009 is too poor to benefit from the $1,000 per-child credit. People who pay federal payroll taxes but earn too little to pay federal income taxes do not benefit from a tax credit unless it is refundable. Currently the refundable portion of the CTC is limited to 15 percent of earnings above $12,550 in 2009 (this threshold is indexed for inflation). The House-passed bill would have removed this earnings threshold so that the refundable portion of the CTC would be equal to 15 percent of any earnings (the maximum credit would remain unchanged at $1,000 per child). The Senate-passed bill settled on a less generous provision retaining the earnings threshold but lowering it to $8,100.

Citizens for Tax Justice released a one-page fact sheet on Tuesday night showing how families in each state would be affected by the House and Senate provisions and how many more children would be helped by the House version compared to the Senate version. The conference agreement steers a little closer to the House version, setting the earnings threshold at $3,000.

The economic stimulus bill that the Senate approved today includes several tax cuts that are not in the stimulus bill approved by the House of Representatives two weeks ago and which should be excluded from the final bill that goes to the President.

The bill approved by the House of Representatives two weeks ago has a total cost of about $819 billion, while the cost of the Senate bill had grown last week to about $940 billion. A group of self-styled centrist Senators then put forth a compromise that took exactly the wrong approach to cutting down the costs: They mostly removed government spending that economists believe will stimulate the economy -- like aid to state governments, school construction, food stamps -- while they left in most of the regressive tax cuts that Senators have added to the bill.

A new report from Citizens for Tax Justice lists the six most regressive and ineffective tax cuts included in the Senate stimulus bill that are not in the House bill (or, in some cases, are much more limited in the House bill).

Legislation to kickstart the economy is badly needed. Lawmakers who are sincere in their desire to stimulate the economy in the most cost-effective manner should seek to exclude from the final bill these tax cuts, which economists believe will do little to boost consumer demand. They add $124 billion (according to official projections) to the cost of the Senate's stimulus bill compared to the House stimulus bill. The real cost of these provisions is considerably more.

Here are CTJ's worst six tax cuts in the Senate stimulus bill:

1. One-year AMT "patch"
2. Home buyers' tax credit
3. Deduction for automobile purchases
4. Suspension of taxes on UI benefits
5. Five-year carryback of net operating losses (NOLs)
6. Delayed recognition of certain cancellation of debt income

Read the CTJ Report: http://www.ctj.orgpdf/sixworsttaxcuts.pdf
Read the Summary: http://www.ctj.orgpdf/sixworsttaxcutssummary.pdf

The report also explains that some tax cuts could actually be effective in stimuluating the economy -- if they are extremely targeted to poor and working class families. The Making Work Pay Credit and the EITC expansion that appear in both the House and Senate bills accomplish this. So do the provisions in each bill to make the Child Tax Credit more available to poor families, but the report explains that the House provision does a much better job of this than the Senate provision.

A House-Senate conference will now attempt to work out the differences between the House and Senate bills and settle on a final bill, which President Obama wants to sign by the end of this week.

Senators Who Vote Against the Stimulus Are Opposing Significant Tax Cuts for Families with Children

Find a fact sheet showing how families with children in your state would be impacted.

New state facts sheets from Citizens for Tax Justice show that the economic stimulus proposals being considered by Congress include several tax cuts that could significantly benefit working class families with children in every state. The stimulus bill approved by the House of Representatives last week costs a little over $800 billion and about $275 billion of that would go towards tax cuts.

About half of the tax cut portion of the bill consists of a refundable "Making Work Pay Credit" (MWPC) worth up to $500 for most working people (or $1,000 for married couples). The House bill also includes an expansion in the Earned Income Tax Credit (EITC) and a provision making the Child Tax Credit (CTC) more accessible to low-income families. All three of these provisions would create or expand refundable income tax credits, which are the only type of income tax cut that can benefit parents who work and pay federal payroll taxes but do not earn enough to owe federal income taxes.

Refundable credits can allow a family of modest means to have negative income tax liability, meaning the IRS actually sends them a check instead of taking a tax payment from them. This check can be thought of as a way to offset the federal payroll taxes and other types of taxes that working families pay.

The stimulus bill that the Senate is considering this week also includes the MWPC and EITC provisions. It also includes a provision that will make the CTC more accessible to low-income families, but which will not reach as many families as the CTC change in the House bill.

In many states, families with children would receive about $900 to $1,000 in tax cuts from the stimulus proposals.

Find a fact sheet showing how families with children in your state would be impacted.

Senators should support the stimulus bill they are considering this week because, overall, it would provide the boost that the economy needs right now. If the Senate does pass its bill, then a House-Senate conference will likely spend next week working out the differences between the House and Senate versions, and there will hopefully be opportunities to ask conferees to make wise choices. For example, if the Senate version of the bill still includes the less generous expansion of the Child Tax Credit, hopefully conferees will choose to include in the final bill the more generous CTC change approved by the House.

Progressive organizations are distributing the following information to help constituents contact their Senators and urge them to support the stimulus bill being considered in the Senate this week.

The following toll-free number can be used right now to reach the U.S. Capitol, where an operator will connect you to your Senators:
866-544-7573

Progressive organizations have suggested the following message to Senators: Please vote for the economic recovery bill and oppose delaying tactics. Our state needs the jobs that will be saved; our people need its protections against hunger, sickness and unemployment. We need to rebuild our schools and roads. Vote for the American Recovery and Reinvestment Act of 2009!

On Friday, January 23, House Republican Leader John Boehner (OH) and Republican Whip Eric Cantor (VA) presented their "Economic Recovery Plan" to President Obama. The Republican plan is based on income tax cuts for relatively well-off families and business tax cuts. As a brand new report from Citizens for Tax Justice explains, it is unlikely to provide the needed boost to consumption that economists believe can come from either direct government spending or putting money in the hands of working class people who are likely to spend it quickly.

Less Than a Quarter of the House GOP's Tax Rate Reduction Proposal Would Go to the Poorest 60 Percent of Taxpayers

The House GOP plan proposes to reduce the two lowest individual income tax rates from 15% to 10% and from 10% to 5%. To get the maximum tax cut of about $3,400 from this rate reduction, taxpayers would have to have enough taxable income to reach the start of the third income tax bracket. For example, a married couple with two children would typically need to earn more than $100,000. That's considerably more than most people earn. In fact, only one in five of all taxpayers has enough income to reach the third income tax bracket and receive the full benefit of the proposed tax rate reduction.

On the other hand, the plan proposed by Democrats in the House of Representatives (which is scheduled to come to a floor vote today), delivers tax cuts to working families who don't pay federal income tax but pay a lot in payroll taxes. For example, the "Making Work Pay Credit" would give married couples with $8,100 or more in wages the full $1,000 credit provided in the bill. In order to have an equivalent benefit from the Republican rate reduction, a married couple (with two children) would have to have $46,000 of gross income. The House Democrats' plan would also expand the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) which are smaller tax breaks in terms of revenue but are even more targeted to working families.

Read the new CTJ report.