Economic Opportunity for AllCampaign

Tax Policies Can Reduce Poverty and Create Economic Opportunity

Basic necessities consume a larger portion of income for low-income 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 incomeo Earned Income Tax Credito Child Tax Credit

Promoting savings helps by giving people an incentive to try and build assetso Saver’s Bonuso Individual Development Accounts

Promote expansions of low-income tax credits that increase income and lift people out of povertyo Expand the Earned Income Tax Credit for individuals and

familieso 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 povertyo Encourage worko Promote personal responsibility

RESULTS’ Economic Opportunity Campaign

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 eligibilityo Eligibility based on earned incomeo 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 incomeo 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 low-income 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 2008 maximum credit for HH with 2 kids = $5028o 2008 maximum credit for adult with no kids = $457o 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 permanento 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

• 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 Unlike EITC, CTC is not fully refundableo If credit exceeds tax liability, tax filer gets the lesser of:

Remaining credit, OR 15% of income above the minimum income threshold

The Child Tax Credit

• Threshold for eligibilityo 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 refundableo Limits refund for low-income families

Problems with the CTC

Wall Street Bailout Legislation (October 2008)o RESULTS and our allies lobbied in 2008 to get the CTC

threshold loweredo In October 2008, Congress lowered the CTC threshold from

$12,050 to $8,500 (applies to 2008 returns only)o 13 million children benefited

• 3 million new kids qualify, 10 million get a larger refund

American Recovery and Reinvestment Act (February 2009)o Building on the momentum created in 2008, RESULTS and

our allies pushed for an even lower thresholdo Congress lowered threshold from $8,500 to $3,000 for 2009

and 2010• Another 13 million children will benefit in 2009 and 2010

Recent CTC Improvements

Improvements Still Needed to CTC Lower the income threshold to $0 and eliminate

inflation adjustmentso Allows all low-income families to participateo 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 low-income 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

Building Savings and Assets

Creating savings and wealth is the clearest pathway out of poverty

Other non-tangible benefitso 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.

o 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.

o 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 Low-income tax filer agrees to invest refund into a product (savings account, U.S. savings bond) right from their tax return

o Portion of savings is matched by the governmento Can use matched savings for certain things like education,

home purchase, start business, retiremento 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 Similar to Saver’s Bonus, except person opens account on

their own, not via tax returno Includes financial literacy trainingo Matched portion again limited to certain things like buying a

home, starting a business, education, retirement

S. 22/H.R. 536: Strengthen the EITC Acto Makes EITC changes from the ARRA permanent (expanded EITC for

married couples and larger families)

S. 985/H.R. 2277: Savings for Working Families Acto Expands IDA program and financial literacy trainingo Could allow up to 2.7 million people to participate in IDA programs

S. 722: Taxpayer Certainty and Relief Act of 2009o 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.

Tax Credit and Asset Building Bills in Congress

• 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 short-changed by the way the tax code is currently written.

Low-Income Tax Credits Laser Talk

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 low-income 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.

• 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)?

Low-Income Tax Credits Laser Talk

Economic Opportunity ResourcesRESULTS

www.results.org

Center on Budget and Policy Prioritieswww.cbpp.org

National Community Tax Coalitionwww.tax-coalition.org

Center for Economic Progresswww.centerforprogress.org

Center for Tax Justicewww.ctj.org

Tax Policy Centerwww.taxpolicycenter.org

Coalition on Human Needswww.chn.org

Corporation for Economic Developmentwww.cfed.org

New America Foundation’s Asset Building Projectwww.assetbuilding.org

RESULTS/RESULTS Educational Fund 750 First St NE, Ste 1040

Washington DC 20002

RESULTS Economic Opportunity Campaign Contacts:Meredith Dodson, dodson@results.org, (202) 782-7100, x116

Jos Linn, jlinn@results.org, (515) 288-3622Alan Gold, gold@results.org, (202) 783-7100, x106

www.results.org