Senate bill: Short of rhetoric

Despite a proposed improvement in the Child Tax Credit, the Senate tax bill doesn’t live up to proponents’ rhetoric to support families with children.

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Despite Child Tax Credit change, Senate Tax Bill Doesn’t Live Up to Rhetoric in Supporting Families with Children

One of the few provisions in the proposed Senate tax bill that has bipartisan support is increasing the Child Tax Credit (CTC), which has been designed to better reflect the costs of raising children. It has been cited as a major benefit to working and middle-class families with children.

Like other provisions, however, this change is done in ways that provide almost no help to working low- and moderate-income families, while providing huge breaks for very wealthy ones. For middle-income families, the gains from a higher child tax credit are mostly offset by losses in personal exemptions, and some middle-class families would actually pay more under the proposals than under current law.

The Senate and House versions both provide information needed to calculate the taxes different tax filers would pay on their 2018 income (the year the changes go into effect) and to then compare these with the taxes they would pay under current law.

In the Senate version, the partially refundable portion of the CTC is unchanged, except that it would be indexed for inflation going forward, increasing to $1,100 in 2018. The nonrefundable credit is increased by $1,000 per child, making a maximum credit per child of $2,000 (the House version provides only an additional $600 credit, in addition to also indexing the partially refundable portion to $1,100). Both bills extend eligibility for higher income families (from a current phaseout beginning for married joint filers at $110,000 of adjusted gross income to $500,000 in the Senate version and an even higher level in the House version).

Performing the comparison of what tax filers in 2018 would experience from the CTC increase, a single mother with two children working full time and making a little above the minimum wage, $16,000 per year, gets no benefit under the House version and only $75 under the Senate version, compared with current tax law. A married couple with two children making $29,600 only receives the additional $100 per child of the refundable credit under the Senate and House versions. That the CTC provisions largely leave behind low and moderate-income families is particularly unfortunate, as these are the families that live paycheck to paycheck and could most benefit from additional support in raising their children.

Meanwhile, a married couple with two children making $300,000 per year gets the full benefit of the tax credits, $4,000 for the two children under the Senate version. This is on top of a tax cut from other changes in the tax code of at least $8,639 (which would be more if the family has extensive itemized deductions or tax-exempt income). Overall, this family is at least $12,639 better off after doing its taxes, compared with current law, $4,000 due to its new eligibility for the CTC.

For simplicity, these examples assume that all income is earned income and that the filers all take the standard deduction. If, because of buying a home, paying state and local taxes or a combination of the two, middle-income taxpayers now itemize their deductions, the increase in the standard deduction may not help at all and the loss of personal exemptions may mean they pay more taxes.

A married couple starting out with a young child and $60,000 of income, for instance, who now claims $24,000 as an itemized deduction ($18,000 in mortgage interest and property taxes, $4,000 in state and local taxes, and $2,000 in charitable contributions or other deductions) would owe $359 more in federal taxes under the Senate version. Although the family would benefit from the increase in the CTC, that would be more than offset by other changes, such as the loss of personal exemptions.

The chart below shows the specific impacts on these families of the changes in the child tax credit itself but also the changes of the overall tax changes to their individual income tax:

Tax proposals should be examined both in terms of individual provisions and in terms of their overall impact. On the former, under the Senate version the benefits of raising the Child Tax Credit are highly skewed toward the highest income tax-filers. This needs to change, by making the CTC refundable and not extending it so dramatically to the highest income families.

On the latter, the overall structure of the tax provisions largely negate the positive impact expansions of the CTC have for many middle-income families, while bestowing even more benefits on high income ones. Tinkering with the CTC without major changes in other provisions in the tax proposal cannot correct these flaws.

Rather than adding CTC provisions to a bill with other fundamental flaws, Congress should start with how it can make the CTC better reflect the cost of raising families. There exist different bipartisan proposals that would do this, but the proposal before Congress goes in the opposite direction.

Charles Bruner of Ames, a former member of the Iowa House and Senate, is director emeritus of the Child and Family Policy Center in Des Moines. CFPC, he worked with the Iowa Policy Project to form the Iowa Fiscal Partnership. Find his commentary on current issues at childequity.org. Contact him here.

Congressional tax bills: New loopholes

Needed fixes on the Alternative Minimum Tax would limit the ways the very rich avoid taxes — but the bill in Congress would just eliminate it, at a cost of $696 billion over 10 years.

To most people, tax reform means closing loopholes. To those in Congress pushing an overhaul of federal taxes it apparently means the opposite. The House and Senate tax bills would reopen a number of loopholes used by high-income taxpayers to shelter income from tax, and create a huge new one. Without shame, they are calling this “tax reform.”

First, the new loophole. This one is doubly ingenuous, touted as a “reform” that helps “small business.” It allows individuals who receive income from a business that they own (if that business is not a corporation) to pay no more than the 25 percent individual income tax rate on that income. Here’s the thing: Most truly small businesses are already in that tax bracket, or lower, because they have less than $250,000 in business income; these taxpayers get no benefit from the bill.

So who would benefit? Almost 70 percent of this “pass-through” income goes to the richest 1 percent of taxpayers. They are hedge fund managers and real estate developers who own a non-corporate business, and who now pay tax at one of the top rates for individuals (up to 39.6 percent). This pass-through loophole is no help to small businesses; it is a gift to the rich, and a very costly one indeed: $597 billion over 10 years.

Now for the loopholes re-opened. If you are an ordinary, hard-working middle income taxpayer you probably have never had to worry about something called the Alternative Minimum Tax (AMT). That’s because you didn’t have income from incentive stock options, you didn’t take an oil depletion allowance, you didn’t claim net operating losses. In short, you didn’t have the kinds of income that escape taxation. You had mostly wages and salaries, which are fully taxed.

The AMT originated in the late 1960s and was supposed to ensure that those with preferentially treated income or large deductions paid at least some minimum amount of income tax. Donald Trump, for example, was required to pay an additional $31 million in 2005 because of the AMT. (We know this because of the partial tax return for that year that was made public.) Without the AMT, tens of millions of his income would have escaped taxation.

The AMT does need fixing; it does not succeed in taxing all kinds of preferential income, and many of the very rich still find ways to avoid tax. But instead of fixing it or replacing it with something better, this bill would just eliminate it permanently, at a cost of $696 billion over 10 years, a big chunk of the total cost of the bill.

In the name of tax reform, congressional Republicans are opening the loophole floodgates for high-income taxpayers; these two measures will cost $1.3 trillion. That means another $1.3 trillion in federal deficits, or in cuts to programs like Medicare and food assistance, to keep wealthy donors happy.

Peter Fisher, research director of the Iowa Policy Project

pfisher@iowapolicyproject.org

The Case of the Missing Middle-Class Tax Cut

If you’re looking for a real middle-class tax cut in the Senate plan, you’d better put Sherlock Holmes on the job.

If Sherlock Holmes were a United States Senator, he’d be on it: “The Case of the Missing Middle-Class Tax Cut.”

We’ve all heard about the suspicious tax cut. It’s been in all the papers, all the social media posts, anywhere the spin merchants can find a way to promote the idea that the proposed massive and permanent tax-cut giveaway to millionaires, billionaires and corporations is somehow a “middle-class tax cut.”

Puh-leeze.

No reliable information can justify the billing. Middle-class and lower-income taxpayers ultimately will — on average — pay more as a result of this legislation if it becomes law.

In Iowa, the Institute on Taxation and Economic Policy (ITEP) has shown that despite some minor benefits upon enactment, the bill when fully phased in will actually result in a tax increase, on average, for the bottom 60 percent of Iowa taxpayers. Higher up the income scale, tax cuts will remain. (In the graph below, average tax changes for the bottom three quintiles of Iowa taxpayers are shown as increases, above the line.)

Someone in Iowa making $1.5 million in 2027 would get about a $4,800 benefit under the ITEP analysis — not a lot to people at that income, maybe a good payment on luxury box rent at the ballgame.

But that break for the top 1 percent would total about $68 million — a hit to services on which the money could be spent on behalf of all.

Millions of Americans — an estimated 13 million — would lose health insurance under this bill, a large share of those not giving up insurance voluntarily, but because they could no longer afford it.

Billion-dollar estates that already have $11 million exempt from tax under current law would see a doubling of that exemption, as if the first $11 million free and clear is not enough while the millions of working families struggle to get by, some at a $7.25 minimum wage that has not been raised in over eight years (in Iowa, 10 years).

A Child Tax Credit designed to help working families with the costs of raising children would be extended to families earning $500,000 a year — as if those families need the extra help, when families making $30,000 get little from the deal. By the way, that is one of the changes billed as a middle-income break, and even it would expire in 2025.

There is no expiration, meanwhile, on the estate-tax break or on new giveaways to corporations.

If you’re looking for a real middle-class tax cut in this legislation, you’d better put Sherlock Holmes on the job. Even then, anything you find has an expiration date, plus tax increases. And the millionaires’ cuts that remain will clamp down on resources for the essential things that government does to protect and assure opportunity for us all, and our nation’s future.

You cannot afford to do both — provide critical services and also cut resources to pay for them.

It’s elementary.

Mike Owen, executive director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

Red ink, inequity and pain

UPDATED NOV. 20*

redink-capitol

To dive into an ocean of red ink for a tax cut that will do little to boost the economy is one thing. To pretend it benefits middle-class families is, at the least, cynical.

It is impossible to view either the Senate or House tax bills moving in Washington as anything but a boost to the wealthy.

Responsible analysis by respected research organizations makes this apparent. The wealthy don’t just do the best in this legislation — they are the clear focus of it.

New data released by the Institute on Taxation and Economic Policy offer several key illustrations of how the Senate Republican proposal approved last week by the Finance Committee, which includes Iowa Senator Chuck Grassley, will affect Iowans:

  • The middle 20 percent of families, people making between $59,300 and $87,080 (average $72,400) receive only 12 percent of the overall tax cut in 2019. Meanwhile, the top 20 percent receive more than half — 62 percent.
  • In 2019, the top 1 percent has a larger overall tax cut than the bottom 60 percent, $483.1 million (average $32,200) to $407.9 million (average $450).
  • In 2027, as the small benefits at the middle phase out and structural changes at the top are made permanent, the bottom three-fifths of Iowa taxpayers will see $58.7 million in tax increases averaging $60, while the top 1 percent will keep an average $4,770 tax cut at a cost to the treasury of $67.7 million.

Those who are promoting this bill should at least have the honesty to call it what it is: a new handout to the wealthy — one that everyone will pay for, to the tune of $1.5 trillion over 10 years, and an almost certain loss of critical services that benefit all.

* Note: The original post from Nov. 14 has been updated with figures from the Institute on Taxation and Economic Policy analysis of the bill passed by the Senate Finance Committee.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project.

mikeowen@iowapolicyproject.org

 

Tax cuts vs. clean energy

The Midwest, and especially Iowa, has invested in wind and solar power. Both wind and solar are under attack in the new plan.

Much is being written about the effects of the House Republican tax proposal on different states. By excluding or limiting deductions for state taxes, the proposed tax plan favors states with no income tax — which often is the tax most fair to all of a state’s residents.

Another way states will be affected differently is in energy development.

The Midwest, and especially Iowa, has invested in wind and solar power. There is a production tax credit for wind and an investment tax credit for solar. Both wind and solar are under attack in the new plan.

The wind tax credit already is scheduled to phase out over the next five years but the Republican plan would both speed up the date and cut the present amount of the tax credit. Authors of the bill may not succeed because of something obvious to everyone in Congress, and noted in one news report:

“A report released by Morgan Stanley last week said the Senate is unlikely to pass changes to the tax credit, noting that 85 percent of wind projects are in Republican jurisdictions.

“Sen. Chuck Grassley (R-Iowa) issued a statement last week saying he’s working to block the proposed changes. He told reporters last year that he would fight to preserve the PTC, saying President Trump will ‘have to get a bill through Congress, and he’ll do it over my dead body.’”

As someone who ran against Senator Grassley in 1998, I can tell you we agree on this issue. Proponents of the tax plan claim wind has to get a reduced tax benefit so that taxes on business can be cut overall.

Oddly, they do not see the same need to rein in all tax credits for all energy industries. The state of Georgia where a two-unit nuclear plant is way over budget and way late being finished gets the benefit of extending a tax credit for its big utility company. I bet our Senator Grassley will point that out if and when the tax plan gets to the Senate.

The Trump Administration ignores climate change and wants to subsidize coal plants. But now the U.S. House tax plan would add to the problem of warming our atmosphere by helping to cut back on the cleanest, safest, cheapest new energy source.

It turns out the skewing of benefits to the wealthy, clearly evident in this plan, may not be the plan’s only problems.

David Osterberg, founder of the Iowa Policy Project

dosterberg@iowapolicyproject.org

 

Unions overcome unbalanced bargaining law

ALEC-friendly lawmakers, eager to crush public-sector unions, may have instead given them new organizational life.

If Iowa lawmakers thought that their Draconian revisions to Chapter 20 could break the back of public-sector unionism, the last two months have proven them spectacularly wrong. Since early September, almost 500 of Iowa’s public-sector bargaining units have been forced into recertification elections.

Under the new rules, locals had to pay for the election themselves — and then win a majority of the entire bargaining unit (not just the votes cast). AFSCME’s Danny Homan remarked that of those pushing the new restrictions, “not one … could win an election under the rules they gave us.”

As is evident in the returns, public-sector workers have not only dug in their heels against the attack on their rights to bargain, but have begun to push back. ALEC-friendly legislative leaders, so eager to crush public-sector unions and silence their political voice, may have instead given them new organizational life.

Consider some of the numbers from the September and October elections (summarized in the graphic above). Of those voting, almost 98 percent voted to keep the union. In 229 elections, all the votes cast were “yes” votes.

Of the 32 bargaining units (accounting for about 1,000 workers) decertified, only five lost the majority of votes cast; in 21 units, nonvoters — counted as “no” under the new rules — tipped the balance. In six other units, no one voted.

A look at the 32 decertification returns suggests results that are starkly undemocratic: At Broadlawns Medical Center in Des Moines, for example, nurses voted 74-27 to stick with SEIU 199. But, because they needed 99 votes to capture half of the bargaining unit, they lost. In the Iowa Falls Community School District, a Teamsters 238 local voted 27-0 to certify. But because they needed 33 votes to capture half of the bargaining unit, they lost.

As an example of the success of strong organizing in the face of the rules imposed upon workers, Iowa State Education Association locals in 233 locations mobilized for recertification votes — winning 229 of those and losing only four by a total of 15 votes. Even in those four isolated cases, ISEA was favored by a majority of those actually voting — just not enough to satisfy the special restrictions placed on them by lawmakers.

Colin Gordon, senior research consultant to the Iowa Policy Project

cgordonipp@gmail.com

Tax plan: Don’t be fooled

Living in Iowa, we know snow when we see it, and what’s coming from Washington is a snow job of devastating proportions.

Recognize the House Republican tax bill for what it is: a plan to add at least $1.5 trillion in federal deficits to make the rich richer, and hurt Iowa’s working and middle-income families.

How will we pay for those deficits? Some lawmakers have already made it clear they want to gut economic and health security of families who are already vulnerable.

On the block: Medicaid, food assistance and education from Head Start through college, just to name a few likely targets given recent attempts in Washington.

Inevitably, these kinds of service cuts ultimately will put pressure on our state government to respond, at a time when the state is already hard-pressed to meet current obligations.

Is that what Iowa lawmakers signed up for? If so, they neglected to campaign on it — on how they will choose who gets health care, which school districts will decimate their own staffs, and where parents might find preschool for their kids. There has been precious little to show us how they will assure educational opportunity for students in economically vulnerable families, or workers at mid-career who suddenly find themselves out of work.

Yet, all we’re hearing from the authors of the tax plan in Washington is that it helps middle-income families — all evidence to the contrary notwithstanding. And, largely, silence from the folks who will be the final arbiters in Des Moines when the time comes to make state-level choices.

It’s not like this snow job from the East was not in the forecast. Many have seen it coming. The nonpartisan Tax Policy Center estimated in September that $75,000 income households with kids would see only a $20 average tax cut in 2027 from the GOP tax framework at the time — compared to a $200,000 cut for millionaire households with children.

In addition, the nonpartisan Institute on Taxation and Economic Policy found over half of the benefits of that earlier plan in Iowa going to the top 1 percent, with less than 15 percent going to the bottom three-fifths of Iowans.

When the new plan burst from behind closed doors late last week, responsible analysis quickly showed impacts. The plan:

11-5-17tax-f1More details will become apparent in the coming days with further responsible analysis that we can hope will find its way into the public debate.

Those peddling the tax-cut spin are counting on people to tire of the debate and let these cuts happen. The stakes are no less critical today than they were the first time they were identified.

Bad policy is bad policy. Bad economics is bad economics. And the poor services that result, alas, are what they are.

2017-owen5464Mike Owen, executive director of the nonpartisan Iowa Policy Project

mikeowen@iowapolicyproject.org