This week's release of Census data showing that a growing number of families are officially poor prompted CTJ to examine claims that too many Americans are paying "no" taxes and calls to raise taxes on low-income families.

Aside from recipients of Social Security benefits (which are largely untaxed), all but the poorest Americans do pay federal income taxes or federal payroll taxes or both. We estimate that in 2010, only 15 percent of non-Social Security taxpayers paid zero dollars or less in combined federal income and payroll taxes.  These families and individuals pay other types of taxes, as this report explains.

Fifty-seven percent of those who paid zero or less in combined federal income and payroll taxes had incomes below $15,000, and 76 percent had incomes below $20,000. This tells us that the vast majority of these taxpayers were quite poor because the average poverty threshold for 2010 was $14,218 for a household of two individuals and $22,314 for a household of four individuals.

Our 3-page report is here.

The Obama administration has proposed to change the way unemployment insurance is financed to avoid tax increases on businesses that will otherwise occur automatically — but Republicans in Congress are resisting the plan because it allows for the possibility that states will collect more taxes overall from employers in the future.

Unemployment insurance benefits are generally financed by state taxes on employers while the administration of the program is financed by federal taxes on employers. The state tax revenue is saved in trust funds from which benefits are paid, but these had run dry in most states at the end of 2010, so states were allowed to borrow from the federal trust fund. States must eventually pay that money back with interest, but the economic recovery act enacted in 2009 gave states a break on the interest payments for almost two years.

The federal UI taxes on employers will increase automatically, under current law, in many states this year or next year to pay for the principal on those loans from the federal trust fund. On top of that, states must start paying the interest, and for this they often levy additional state taxes on employers. All of this is scheduled to occur at a time when economists agree that the recession is far from over.

The Obama administration's plan would respond by delaying the automatic increase in federal UI taxes on employers and the due date for the interest payments from the states for two years. In 2014, the plan would more than double the tax base, from $7,000 of wages for each employee (which has not been adjusted since 1983) to $15,000. The rate of the federal tax would be reduced so that the federal tax would not be increased overall. The state taxes have the same base (at a minimum) as the federal tax, so the states could collect more revenue to shore up their programs if they did not change their tax rates.

The Center on Budget and Policy Priorities and the National Employment Law Project released a report Wednesday that spells out a very similar plan and explains its benefits.

Not for the first time, Republican leaders are putting themselves on record as preferring to allow a tax increase to take place rather than support a tax bill that is not exactly what they want.

A new online resource, Tax Credits for Working Families, was recently launched to highlight the importance of providing affordable and targeted assistance through refundable tax credits to the growing number of people and families living in poverty across the country.  Check out the website for links to research and state-level information on state refundable Earned Income Tax Credits, property tax circuit breakers, and child related credits.

(Includes state-by-state figures)

A new report from CTJ finds that the compromise tax plan agreed to by President Obama and congressional Republicans would provide more than a quarter of its tax cuts to the best-off one percent of all Americans. That’s almost double the share of the tax cut that the President proposed to give the highest earners.

At the same time, the new tax plan would reduce taxes, and increase the budget deficit, by $424 billion in 2011 alone. That’s 40 percent more in tax cuts than the $301 billion tax cut the President had earlier proposed.

Read the report.

House Democrats voted in a closed-door caucus meeting on Thursday to not take up the compromise deal, which also includes a 13-month extension of expanded unemployment benefits, until changes are made to the tax provisions. Meanwhile, the Senate is debating the compromise today.

Under the compromise plan:

- The wealthiest one percent would get an average tax cut in 2011 of almost $77,000 compared to current law (under which all of the tax cuts enacted since 2001 are scheduled to expire). That’s almost triple the $29,000 tax cut that President Obama proposed to provide to the top one percent.

- Meanwhile, the lowest-income fifth of all taxpayers, those making less than $20,000 a year, would get a smaller tax cut than the President earlier proposed. This is because the GOP-inspired, 2 percent temporary reduction in the payroll tax in the compromise plan offers low-income workers a considerably smaller payroll tax reduction than the President’s proposal to extend his “Making Work Pay” payroll tax cut. The Making Work Pay payroll tax cut entirely eliminated the 6.2 percent worker payroll tax on the first $6,450 in earnings ($12,900 for couples).

The payroll tax cut agreed to by the President and GOP leaders would also provide considerably less economic stimulus “bang for the buck” than the President’s earlier proposal, because it is largest for high earners, who are less likely to spend their payroll tax savings. The compromise payroll tax cut would cost an estimated $112 billion in 2011, double the $57 billion dollar cost of the President’s earlier proposal. But we estimate that $112 billion in added borrowing would stimulate only an extra $18 billion in consumer spending compared to the President’s earlier payroll tax cut plan.

A minority of Senators made clear on Saturday that if the Bush tax cuts cannot be extended for the very richest taxpayers in America, then they will allow the tax cuts to expire for everyone.

Senate Republicans successfully filibustered a bill based on President Obama's tax plan to permanently extend the Bush tax cuts for the first $250,000 of income for married couples and the first $200,000 of income for unmarried individuals. The two percent of taxpayers with incomes above $250,000/$200,000 would therefore continue to enjoy part of the Bush tax cuts while the other 98 percent would continue to enjoy all of them.

Throughout months of debate over President Obama's tax plan, lawmakers and reporters often seemed to think that a person making one dollar over the $250,000/$200,000 threshold would lose all of the Bush tax cuts. CTJ's recent report shows this is entirely untrue. For example, it explains that married couples with incomes between $250,000 and $300,000 would only lose 1 percent of the Bush tax cuts, on average, under the Democratic tax plan.

The bill, introduced by Finance Committee Chairman Max Baucus, would also have allowed the estate tax to come back into effect but only at the levels that existed in 2009, with an adjustment for inflation. The bill would also have made permanent expansions in refundable tax credits for low-income families that were included in the economic recovery act enacted last year. Emergency unemployment insurance (UI) benefits, which recently expired, would have been extended for one year under the bill.

Unlike nearly every democratic institution on Earth, the Senate cannot approve anything without a super-majority of three-fifths of the chamber's votes. Democratic leaders were able to muster 53 votes for the tax bill, seven short of the 60-vote threshold to overcome a filibuster.

Voting with the Republicans were Joe Lieberman (D-CT), Ben Nelson (D-NE), Joe Manchin (D-WV), Jim Webb (D-VA), and Russ Feingold (D-Wisconsin). Unlike the others, Feingold made it clear that he voted against because he believed that this bill to extend tax cuts entirely for the first $250,000/$200,000 of income is simply too expensive.

The Senate held a second vote on a proposal introduced by Senator Chuck Schumer (D-NY) that was the same plan except that the tax cuts would be made permanent for the first $1 million of income. Republicans and Senator Lieberman voted against this bill also, but were joined by some progressive Democrats who believed that the $1 million threshold was too high.

"A minority of Senators are saying that the chamber must extend tax cuts for the extremely rich, or else low-income and middle-income families will lose their tax cuts, and people who are jobless through no fault of their own will receive no more help," said Bob McIntyre, director of Citizens for Tax Justice. "Even a proposal to extend the tax cuts for the first $1 million of income is not enough to satisfy this minority of Senators. Their disregard for working class Americans and their blind loyalty to multi-millionaires would be hard to believe if they were not on full display this weekend."

The tax bill passed by the House yesterday (H.R. 4853) would make permanent two provisions that were included in the economic recovery act and which would otherwise expire at the end of this year. One makes the child tax credit more accessible to low-income working parents. The other reduces the marriage penalty in the EITC.

The bill introduced by Senate Finance Chairman Max Baucus, which Democratic leaders plan to vote on Saturday, would make these changes permanent as well as a third change in the recovery act that expands the EITC for families with three or more children.

For more information, see CTJ's recent state-by-state figures showing how each of these provisions impacts families with children.

A recent survey shows that fewer than one in ten Americans knows that that President Obama cut their taxes in 2009 and 2010, and many believe he actually raised them. CTJ released this report and state-by-state fact sheets before Tax Day showing that the recovery act signed into law by President Obama cut taxes for 98 percent of working Americans.

Read the report and state fact sheets.

President Obama wants to sign a jobs bill into law. The majority of members of the House and Senate want the same thing. So do the two million out-of-work Americans who will have lost their unemployment benefits by July because of Congress's inaction. Not to mention the millions of Americans who will see public services like education and public safety slashed because their states have to make up shortfalls in Medicaid funding. And then there are the mainstream economists who conclude that some deficit-spending on measures that pump money immediately into the economy and create jobs are entirely justified when unemployment is hovering around ten percent. In the face of all this, a minority of 42 Senators has managed to block legislative action.

Congress has fought a months-long battle over the bill, H.R. 4213, which includes an extension of emergency unemployment benefits and Medicaid funding to states, two spending measures that economist Mark Zandi has argued are the most effective way to stimulate the economy. These measures result in immediate spending, which leads to a boost in consumer demand, and the retention or creation of jobs to produce the goods and services needed to meet that demand.

The bill also includes a collection of provisions that extend short-term tax breaks for business that Congress enacts every year or so. Members of Congress and Hill staffers often call these the "tax extenders." CTJ has criticized the tax extenders for years. But, we support them this year because they are coupled with provisions that would offset their costs by clamping down on unfair tax loopholes. This is a major step forward for Congress. See CTJ's many reports on these loophole-closing provisions.

To their credit, Democratic leaders have tried every conceivable tactic to win over the so-called "moderates" who are blocking the bill.

For example, the House passed legislation three times to completely eliminate the infamous "carried interest" loophole that allows certain wealthy investment fund managers to treat their compensation as capital gains and thus enjoy a lower tax rate. This time, the House scaled back its provision to close this loophole, and Democratic leaders in the Senate scaled the provision back multiple times in their versions of the bill. Eliminating this loophole, which was proposed by the Obama administration, was estimated to raise about $24 billion over a decade. Democratic leaders in the Senate whittled that down to $13.6 billion. The provision is not so much a loophole-closer any more as a loophole-reducer.

Other compromises made to secure votes were even more alarming. The most recent proposal would have taken over $9 billion of unspent funds from the recovery act that are supposed to be used for food stamps to help offset the costs of this bill. This is preposterous. Food stamps are one of the most effective types of stimulus, along with unemployment insurance benefits and fiscal aid to states, according to Mark Zandi.

The country needs the Senate to pass, some way or another, a jobs bill. Sadly, Democrat Ben Nelson and the 41 Republican Senators have the ability, under the Senate's bizarre rules, to stop that from happening.

Federal benefits for the long-term unemployed have been expired for over a week and the Senate still has not approved a bill (H.R. 4213) that would extend these and other vital measures. The bill also includes badly needed Medicaid funding for states and other provisions that would stimulate the economy. (See CTJ's recent reports on this legislation).

Call your Senators and urge them to vote for H.R. 4213.

Use this toll-free number provided by AFSCME to make your call: 888-340-6521

Part of the consternation among some Senators is that the spending provisions in the bill would add (modestly) to the deficit. Economists have explained that short-term deficit-financed spending measures can be used to effectively boost consumer demand, and thus job creation, during a recession, without adding to the long-term budget crisis.

Many of the Senators who have supported tax cuts that created long-term deficits (the kind of deficits that actually do lead away from fiscal sustainability) now oppose this bill out of their concern about "fiscal responsibility." Other Senators are more genuine in their concern about deficits but have wildly misplaced fears about a bill that has little, if anything, to do with our long-term budget situation.

A number of Senators are still concerned about the tax provisions in the bill. It includes an assortment of small tax cuts (mostly for business), which are often called the "tax extenders" by members of Congress and their staffs. While these tax breaks probably accomplish very little, the good news is that their cost would be offset with provisions that close unfair tax loopholes.

It's the Senators' devotion to maintaining these loopholes that is another factor slowing down progress on this bill.

Battle Continues Over "Carried Interest" Loophole for Investment Fund Managers

The most controversial tax provision would clamp down on the "carried interest" loophole, which allows investment fund managers to treat their earned income as capital gains and thus benefit from a much lower income tax rate. Over the past few weeks, some honest investment fund managers have spoken up to tell Congress that their loophole really is unjustified, and it was also reported that two Republican Senators favor closing the loophole.

The draft of the bill proposed by Senate Majority Leader Reid already watered down this reform a great deal (compared to the version that passed the House) by allowing the lower capital gains rate to continue to apply to a larger portion of carried interest. As a new report from the Center on Budget and Policy Priorities explains, the last thing Congress should do is weaken this provision any further.

Senators Defend the "John Edwards" Loophole

Another controversial reform would close the "John Edwards" loophole for "S corporations." Payroll taxes apply to wage income, but not other types of income. So, some people want to disguise their wage income as non-wage investment income to avoid payroll taxes. People who own S corporations have to determine (and tell the IRS) how much of their income is wage income and how much of it is other income, and of course there is a huge incentive to underestimate the amount that is wage income.

John Edwards famously played this trick by saying that his name was an asset and this asset, rather than his work, was generating most of the income of his S corporation.

Some Senators have expressed concern about the effect this reform would have on small businesses. But none have explained coherently why we should allow this type of scheme to continue.

A new report from Citizens for Tax Justice explains that the new jobs and "extenders" bill released by the chairmen of the House and Senate tax-writing committees on Thursday contains several long-overdue provisions to close tax loopholes. The bill (H.R. 4213) takes aims at corporations that shift profits offshore, investment fund managers who use the "carried interest" loophole to pay lower tax rates than their secretaries, and business people who use the "John Edwards" loophole to avoid their Social Security and Medicare taxes.

Many people are more familiar with the important spending provisions in the bill geared to speed up the economic recovery, including an extension of unemployment insurance and COBRA health care benefits for the unemployed, Medicaid funding for states, TANF jobs and emergency funding for states and other measures that will help boost the economy.

The tax loophole-closing provisions are used to offset the costs of extending several small tax breaks. The spending portion is mostly considered emergency spending that does not have to be paid for under Congress's budget procedures because it is temporary and necessary to prevent the economy from drifting back towards recession. (The Center on Budget and Policy Priorities explains why the spending portions of the bill are economically necessary and fiscally sound.)

Call your lawmakers now and urge them to vote in favor of H.R. 4213. Visit the website for Jobs for America Now, which makes it extremely easy for you to make a toll-free call to your lawmakers to support this bill.

The Coalition on Human Needs is circulating a sign-on letter for organizations in support President Obama's proposals to make permanent some of provisions in the recovery act that expand refundable tax credits to help working families.

If you are authorized to sign on behalf of an organization, please sign your group onto this letter to preserve and build upon tax credits for low-income children, working families, and students.  The deadline is Friday, April 30.

Read the letter. 

Sign the letter. 

CHN is seeking local, state, and national organizations to sign this letter, which will be sent to every Representative and Senator in Congress.  Congregations, service providers, labor, civil rights, social action, policy, and advocacy groups are all asked to join the letter. PLEASE SHARE THIS INFORMATION WITH OTHERS IN YOUR STATE.  

Poverty and hardship are rising across the nation.  Tax credits can help families buy what they need, protecting children and boosting the economy too.  The Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit (for low-income college students) can make a real difference in providing income to millions of families.  But if Congress does not act, these tax credits will expire.  

Why it matters:  A family with two children with a parent working full-time at the minimum wage now receives about $1,750 from the Child Tax Credit.  If the current tax credit law expires, this low-income family will lose $1,500 — and receive only $250.  If the law expires, families with 3 or more children will lose up to $629 in their Earned Income Tax Credit.  And, if the law expires, low-income students will lose up to $1,000 to help with their college expenses.

At a time when unemployment is high, and near depression levels among people with little education, in communities of color, and in some urban and rural areas, this is no time to drastically reduce the help low-income tax credits provide.

The voices of local, state, and national organizations are needed to show Congress very strong support for preserving and improving these tax credits.  Please add your voice by signing this letter — and forward this request to other organizations.

Congress will act on extending tax cuts for the middle class, and must also decide about tax cuts for the rich and for business interests.  Please make sure they remember the millions of low-income families who need help the most — and whose help provides the biggest economic boost.

The 2009 federal income taxes that come due on April 15 have been cut for nearly all working Americans, including Americans at all income levels, by the Recovery Act signed by President
Obama last year. But no one seems to be aware of this. Recent polls indicate that the vast majority of Americans think that the President either raised taxes or left them the same for 2009.

CTJ has new state-specific reports that aim to clear up this widespread misunderstanding. They show that the President cut taxes for working people at all income levels for 2009 and they show who was helped by each individual tax break.

Read the fact sheet and report for your state.

A new report from Citizens for Tax Justice explores the tax proposals included in the federal budget outline that President Obama submitted to Congress on February 1. Like the budget he submitted last year, it is a vast improvement over the policies of the Bush years and continues to outline a progressive reform agenda.

But, also similar to last year, the President’s budget could be greatly improved with more aggressive policies to raise revenue. Over the coming decade, the President proposes to cut taxes by $3.5 trillion. We include in this figure the cost of extending most of the Bush tax cuts and relief from the Alternative Minimum Tax (AMT) as well as additional tax cuts that President Obama proposes.

His budget would offset a portion of this cost with provisions that would raise $760 billion over a decade by limiting the benefits of itemized deductions for the wealthy, reforming the U.S. international tax system and enacting other reforms and loophole-closing measures.

The report concludes that the federal government should collect at least as much revenue as the President proposes in order to avoid larger budget deficits. There are two bare minimum requirements for Congress to achieve this. First, Congress must not extend any more of the Bush tax cuts than President Obama proposes to extend. Second, Congress must raise at least as much revenue as President Obama has proposed ($760 billion over ten years) through loophole-closers and new revenue measures.

Read the full report.

The U.S. House of Representatives adjourned for the year on Wednesday while the Senate hustles to finish legislation on health care. As of this writing, an array of major tax issues are still to be resolved in the next several days or when Congress returns in 2010:

Health Care Reform

On November 7, the House passed its health care bill, (H.R. 3962), which includes a public option. The largest revenue-raising provision in the House health bill is a surcharge of 5.4 percent on adjusted gross incomes over $1 million (or over $500,000 for unmarried individuals).

( See CTJ's previous analysis and state-by-state estimates of the surcharge in the House health care bill.)

The Senate is still working to pass a health care bill, and some reports claim that the chamber could be working on Christmas Eve to accomplish it. While there is a clear majority of Senators willing to support a public option, the rules allowing 41 Senators to filibuster legislation have encouraged a few conservative Democrats to join Republicans in blocking a public option.

While some details remain to be worked out, a majority of Senators seems to have settled on certain revenue-raising provisions to help pay for health care reform. The largest revenue-raiser in the still-developing Senate bill is an excise tax on high-cost health insurance plans. This excise tax is controversial because many analysts conclude that these plans are not particularly generous in the benefits they provide and they are not necessarily enjoyed by high-income workers. Rather, the high costs are often the result of insurers charging more to cover a work force that is older than average or that has high health risks.

( See CTJ's previous analysis concluding that the Senate's proposed excise tax on high-cost health insurance is less progressive than the surcharge in the House health care bill.)

One revenue-raiser in the Senate proposal that is progressive is an increase in the Medicare payroll tax rate on earnings over $250,000 (or over $200,000 for an unmarried individual).

While this tax increase would only affect those who can afford to pay more, an even better proposal would reform the Medicare tax so that it no longer exempts investment income. This idea was included in an amendment that was filed by Senator Debbie Stabenow during the Finance Committee markup, but was not acted on. Such an amendment may be offered when health care reform is debated on the Senate floor.

Job Creation

On December 8, President Obama announced several proposals to create jobs. His best ideas involve direct spending by the federal government (including extending aid to unemployed and low-income people and aid to state and local governments, among other things). His worst ideas involve tax cuts (including eliminating capital gains taxes on small business investment and providing a tax credit for payroll expansion).

( See CTJ's previous discussion of President Obama's job creation proposals and ways to stimulate the economy.)

The House approved a $154 billion jobs bill, as part of a regular appropriations bill (H.R. 2847), before adjourning this week, and thankfully, it focuses on direct spending. One of the few tax cuts included is a provision to remove the earnings requirement (currently set at $3,000) for the refundable portion of the Child Tax Credit, ensuring that low-income families with children can benefit from it. The Senate is not expected to take up jobs legislation until sometime next year.

Estate Tax

The tax cut legislation enacted by President Bush and his allies in Congress in 2001 set the estate tax to gradually shrink until disappearing altogether in 2010. But, like all the Bush tax cuts, this estate tax cut expires at the end of 2010, meaning the estate tax will reappear in 2011 at the pre-Bush levels if Congress simply does nothing.

Families who have several million dollars to leave to the next generation have benefited the most from the infrastructure, educated workforce, stability and other public goods that taxes make possible. So it's entirely reasonable that these families pay a tax on the transfer of their enormous estates from one generation to the next, particularly since the majority of the value in these estates is capital gains income that has never been taxed.

One might be tempted to think that allowing the estate tax to disappear would be fine if it reappears at the pre-Bush levels in 2010. Unfortunately, the one-year repeal of the estate tax could tempt some lawmakers to make that repeal permanent, or might tempt them to allow only a very scaled back version of the estate tax to reappear in 2011.

So the House of Representatives approved a compromise that would make permanent the estate tax rules in effect in 2009. This would partially preserve the Bush cut in the estate tax, but prevent the tax from disappearing in 2010.

( See CTJ's previous analysis of the estate tax legislation, along with state-by-state figures showing how few estates are actually subject to the tax.)

Key Democratic Senators indicated that they did not want to make permanent the 2009 rules because -- incredibly -- they were interested in reducing the estate tax even more. Democratic leaders in the Senate attempted but failed to get agreement in the chamber to pass a one-year extension of the 2009 rules, which would prevent the estate tax from disappearing in 2010 and allow Congress to debate a permanent solution as part of the broader tax debate that must happen before the Bush tax cuts expire at the end of next year.

Pathetically, the Senate failed last week to prevent the one-year repeal, which they had known was coming ever since the Bush cut in the estate tax was enacted back in 2001. Democratic leaders in the Senate say they will enact the one-year extension of the 2009 estate tax rules retroactively in 2010. While retroactive tax increases may not be the ideal way to do things, this approach should not cause any problems since tax planners have known for years that Congress was likely to act to prevent this one-year disappearance of the estate tax.

Corporate Tax Breaks (aka "Tax Extenders")

On December 9, the House approved H.R. 4213, which would extend a series of tax cuts (mostly breaks for business) but would offset the costs by closing the infamous "carried interest" loophole for buyout fund managers and by cracking down on offshore tax cheats.

The bill would also require the Joint Committee on Taxation (JCT) to issue reports evaluating these tax cuts before the end of next year, when Congress is likely to act on them again.

CTJ joined the AFL-CIO, SEIU, AFSCME and eight national non-profits in signing a letter in support of H.R. 4213 for these reasons.

The provisions extending the tax cuts (often called the "tax extenders") are enacted by Congress every year or so. CTJ and other analysts have often criticized the tax extenders as corporate pork routed through the tax code.

But H.R. 4213 is a major step in the right direction for the reasons spelled out in the letter to Congress.

( See our previous article on H.R. 4213 explaining the points made in the letter.)

Democratic leaders in the Senate want to pass the tax extenders retroactively early in 2010. One problem is that the chairman of the Senate tax-writing committee, Max Baucus (D-MT) believes that the carried interest issue is “best dealt with in the context of an overall tax reform,” according to a spokesman. As we've explained before, this is an all-purpose excuse for legislators who want to avoid closing even the most unfair and outrageous loopholes.

On November 6, President Obama signed H.R. 3548, the Worker, Homeownership, and Business Assistance Act of 2009, which provides a much-needed extension of unemployment benefits. Around 400,000 workers exhausted their unemployment benefits at the end of September and far more would have exhausted them by the end of this year without this extension. As a report from CTJ explains, it is still unfortunate that the price of providing this necessary help is tax breaks to corporations and to the housing industry.

Sadly, Congress did not think that helping the unemployed during the worst recession in decades was worthy enough to do without larding the bill up a bit with tax cuts. One is a tax cut that will benefit people who buy a residence and who would have done so whether or not a tax cut was offered to them. The second will essentially give unprofitable companies cash with no strings attached.

Read the report.