Background: Tax Reform and Building Economic Mobility RESULTS International Conference 2017

2017 U.S. Poverty Campaign Main Campaign- Creating Economic Mobility: Building Ladders out of Poverty Expand the Earned Income Tax Credit and Child Tax Credit Oppose tax cuts for the wealthy at the expense of low-income families Build awareness and support strategies to eliminate the racial wealth gap Along with what is listed on this slide, we also have threats this year including the tax reform plan proposed by the White House and the FY 2018 Budget, which I will go more into in the upcoming slides In previous years, our goals have been to expand the EITC, CTC and other poverty reduction programs, but this year we will be more focused on protecting these programs from funding cuts and structural changes – and on ensuring the wealthy do not get further tax cuts at the expense of low and middle-income households

The Wealth Gap There is an ever growing wealth gap in our country – over the past few decades the top 1 percent have been able to access an exponentially higher amount of income and wealth than those at the lower end of the income spectrum

The Racial Wealth Gap Communities of color are disproportionately affected by America’s wealth inequality and asset poverty. We not only have a wealth gap in the United States, but also a very dramatic racial wealth gap For every $1 of wealth White Americans have, Black Americans only have 8 cents and Latino Americans only have 9 cents These graphs on the slide showcase the dramatic increase in the racial wealth gap in the past few decades Causes and Drivers of the Racial Wealth Gap: The Founding of America – Land-Grabbing and Slavery as forms of wealth Home-ownership (Redlining policies and housing mortgage loans which inherently prevented Black families and families of color from accessing housing in neighborhoods of higher value) Predatory lending (especially during the Great Recession) Implications of the Racial Wealth Gap: White families have a deep advantage in comparison to their POC counterparts While 1 in 2 white individuals receive inheritance or financial support from their parents, only 1 in 10 Black individuals do Solutions: There is no one policy solution that will inherently solve the racial wealth gap, but instead there needs to be a multi-faceted approach – such as broadening access to home ownership and equal income

President Trump’s Tax Reform Plan

Key Components of the Tax Reform Plan Lowers Corporate Tax Rate to 15 percent Reduces the current seven income tax brackets to four Eliminates the Alternative Minimum Tax (AMT) Repeals the Estate Tax Transition: The wealth gap and racial wealth gap will unfortunately be exacerbated through the president’s tax reform plan President Trump released a tax reform plan in May– and it has four main components to it listed on the slide. The current corporate tax rate is 35%, which means that under this plan corporations are getting a 50% tax break The AMT is a minimum tax that households pay in addition to the regular income tax – originally intended to prevent the wealthy from using loopholes to pay no federal income tax http://www.taxpolicycenter.org/briefing-book/what-amt Estate Tax: Applied to the wealthiest individuals who inherit property after the death of a loved one. Lessens the wealth gap through taxing inherited wealth that has accumulated financial worth for generations Also limits tax breaks for the wealthy through taxing wealth that otherwise remains untaxed

Implications of Tax Reform Plan Over 60 percent of tax cuts go to the top 1 percent Repealing the Estate Tax expands the wealth gap and reduces funding for anti-poverty programs Implementing this plan is estimated to lose up to $7.8 trillion in revenue over the next ten years This first bullet point will be exemplified in following slide Estate tax is estimated to be charged for only 5,090 estates in 2017 – and of those only 1% would belong to small farms and businesses (the Tax Policy Center) Repealing the estate tax would cost an estimated $269 billion over 10 years (Joint Committee on Taxation) This loss in revenue would especially come from the corporate tax rate being reduced to 15% Offsetting this large loss in revenue would require cuts – and anti-poverty programs would be at risk $7.8 trillion in revenue over 10 years stat comes from the Tax Policy Center The Urban-Brookings Tax Policy Center estimates that reducing the corporate tax rate to 15 percent, like President Trump has proposed to do, would decrease our federal revenue by $2.4 trillion in the next ten years. Offsetting that large loss in revenue could require cuts to necessary anti-poverty programs that feed families, house families and help American workers secure jobs. 

An Unfair Distribution in Tax Cuts Citation and More Info: https://itep.org/trumptaxprelim/ The richest 1% would receive over 61% of the tax cuts under the president’s plan - while the poorest 20 percent would only get about 1 percent of the tax cuts Source: Institute on Taxation and Economic Policy

The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)

The Earned Income Tax Credit (EITC) The EITC: was designed to “make work pay”. is fully refundable, so if a family’s EITC exceeds the amount of federal taxes owed, the family receives the difference as a refund. increases as earnings increase up to a certain income level, then gradually decreases. Applies to working individuals and families The EITC benefits are calculated as a fixed percentage of the worker’s earnings, and phases in (meaning that the amount of benefits received increases as income increases) until the maximum credit is reached (which is about $16k for a family of three). Once that maximum in benefits is reached, the program benefits phase out. The size of benefits depends on marital status and family size

Why the EITC Works The EITC, together with the CTC, is the most effective federal anti-poverty program excluding Social Security. The EITC strengthens work and earnings in the next generation. The EITC promotes work, especially among single mothers. EITC children do better in school. The EITC strengthens local economies. In 2015, the EITC lifted about 6.5 million people, including 3.3 million children, out of poverty. If not for the EITC, the number of poor children in America would have been more than one-quarter higher. Additionally, in that same year the EITC reduced the severity of poverty for another 21.2 million people, including 7.7 million children. Research has found that for children in low-income families, each additional $3,000 per year received before age 6 correlates with an average yearly increase of 135 work hours between the ages of 25 and 37, and their average annual earnings increase by 17 percent The EITC expansions of the 1990s helped more than a half a million families move from cash welfare assistance to work. Elementary and middle-school students earn higher test scores when their families receive larger refundable tax credits. The EITC is estimated to generate $1.50 - $2.00 in economic activity for every $1 spent. EITC is also linked positively to infant health – research shows a positive correlation between increased EITCs and infant health markers such as birthweight and premature births

The Child Tax Credit (CTC) is a partially refundable federal tax credit designed to offset cost of raising children. requires a $3000 income minimum. is the largest tax provision benefitting families with children. Folks receiving the CTC subtract the benefit from the federal taxes they would otherwise owe Just like the EITC, only working families are eligible for the CTC and it phases in as income increases But families must earn a minimum of $3,000 to be eligible for the credit, and it is only partially refundable Meaning if the CTC is greater than the taxes a family owes, they may only receive a partial sum of the credit CTC is worth up to $1,000 per qualifying child under age 17 at the end of the tax year The CTC reaches families of broad income levels – individual filers making up to $75,000 can claim the CTC and married couples claiming up to $110,000 can

Impact of the EITC and CTC The EITC and CTC lifted 9.8 million people out of poverty in 2015. Combined they also made 22 million people less poor in 2015. Citation: https://www.cbpp.org/blog/eitc-ctc-together-lifted-98-million-out-of-poverty-in-2015

Impact of EITC Expansion Community Number of workers benefiting from expanded EITC under Ryan/Obama expansion Number of workers without dependents not taxed into or further into poverty under Ryan/Obama Number of workers benefiting from expanded EITC under Brown/Neal expansion Number of workers without dependents not taxed into or further into poverty under Brown/Neal African Americans 2.1 million 1.1 million 2.6 million 1.2 million Latinxs 2.9 1.3 million 3.8 million 1.6 million Veterans 630,000 192,000 716,000 216,000 Millennials 7 million 3.9 million 9 million 4.5 million Data from unpublished reports by CBPP and partners

Threats: The Fiscal Year 2018 Budget

Threats to the EITC and CTC Both programs may face funding cuts and structural changes in the FY 2018 budget In the President’s budget, there are $40 billion in cuts over 10 years to the EITC and CTC The House budget fast-tracks $40.4 billion in cuts to Ways and Mean, which puts the EITC and CTC at grave risk  Fundamental restructuring of EITC through wage verification requirements CTC may be cut for any child who does not have a Social Security Number In Trump’s FY18 budget, he proposed $40.4 billion in cuts to EITC and CTC over the next 10 years (Another citation: https://www.cbpp.org/research/federal-budget/trump-budget-gets-three-fifths-of-its-cuts-from-programs-for-low-and) The Ways and Means Committee reconciliation instruction cuts – which puts both the EITC and CTC in grave danger– NOT BINDING – number is but up to Ways and Means how to produce that Resurrects pre-certification proposals, which ultimately makes it harder for individuals to file for the credits More details on this in later session – under budget proposal enrolling and receiving benefits from the EITC will require a verification of income, which will make it much harder for folks to receive benefits. In FY18 budget, Trump proposes structural changes to CTC that include both parents applying to need a SSN and no longer allowing an ITIN (more on this later as well!)

Budget Process Source: The House Budget Committee (https://budget.house.gov/budgets/) Transition into Slide: The new FY budget is one tool lawmakers are using to fast-track cuts to critical anti-poverty programs like the EITC and the CTC There will be a session later in the conference that goes into much more detail on the budget and appropriations process, but I will go over the ways it will impact the EITC and CTC briefly here This slide is a good visual of how the budget process works (say where we currently are) President Trump did release his budget to Congress already – more on the makings of that budget on the next slide

Spending Cuts for Tax Breaks House passed budget through committee last Wednesday that includes: Instructions requiring committees to make at least $203 billion in entitlement cuts (includes programs like SNAP, EITC, TANF etc.) Allocates $621.5 billion for defense spending Calls for deficit neutral tax reform instead of revenue neutral tax reform Briefly explain reconciliation process: Reconciliation instructions are a process that fast-tracks cuts to programs and allows for the Senate to pass legislation with only a simple majority vote (51 votes versus 60) – this was done for healthcare In this budget there are two sets of reconciliation instructions and both are related to taxes: 1. Reconciliation instructions for tax reform legislation that will most likely happen in the fall – this would allow senate to pass it more easily without bipartisan support from democrats 2. Reconciliation instructions requiring committees to make cuts – the Ways and Means committee has $52 billion in cuts to make – putting EITC and CTC at risk House Budget: It allocated $621.5 billion for defense spending, $511 billion for nondefense discretionary spending and mandated $203 billion in mandatory spending cuts over the course of a decade. (via The Hill)

But there is good news… 20 Moderate Representatives from a group called the Tuesday Group recently wrote a letter in opposition to a budget that has such large mandatory spending cuts and that does not have bipartisan support. Members can be swayed – keep up your good work!

Next Steps Members of Congress and the White House are already negotiating a tax bill! FY 2018 House and Senate Budget votes will likely be in September It is important that we continue to focus on reducing wealth inequality and the racial wealth gap – and protect the EITC and CTC! Tax reform has been taking a backseat behind healthcare – but there are already members devising a tax plan that is expected to start gaining momentum after the August recess This is when the entire floor will be voting on the budget and adding amendments to it There are still quite a few moderate republicans who are holding out support of the budget in part because it makes such drastic cuts to non-defense and mandatory spending programs Remember that these programs deeply impact individuals and families in poverty – taxes and tax credit programs are the driving forces of income and wealth inequality in this country

Can undocumented immigrants use the CTC? Families can enroll in the CTC using an ITIN or Social Security Number Undocumented immigrants can receive an ITIN in place of the Social Security Number Policies that cut families using ITINS from enrolling in the CTC would cause 1.5 million families with 3 million children to lose the CTC ITIN = Individual Taxpayer Identification Number Highlight that the purpose of the CTC is to help all families raising children have the means to do so, and there are proven benefits for children when they receive the CTC – with so many children in the U.S. being in immigrant and undocumented families, it is not good policy to bar enrollment based on whether or not family members have a Social Security Number 1 in 4 U.S. children are in immigrant families 1 in 15 U.S. born children have at least one undocumented parent There are other policies that have been introduced in Congress which would bar families where both parents do not have a Social Security Number from enrolling as well To receive the ITIN, the IRS requires that the applicant earns an income and lives with an eligible dependent Statistic on amount of families who would lose access to the CYC comes from an estimate from the Joint Committee on Taxation (Link: https://www.cbpp.org/blog/congress-should-reject-misguided-child-tax-credit-measure)

Doesn’t the EITC have high error rates? The EITC is a complicated program – meaning there can be a high error rate, which is not the same as fraud Evidence suggests most of the error comes from tax preparers, not tax filers Instead of making it harder for hardworking Americans to claim the EITC, Congress should support bipartisan proposals to expand the EITC and Child Tax Credit Making the EITC harder to claim (through changing regulations) is not the solution – this will just make it harder for individuals and families to enroll who need help EITC has numerous proven benefits – adding restrictions will only minimize who can access necessary support

Thank you for advocating for tax policies that reduce wealth inequality, help close the racial wealth gap, and protect the EITC and CTC!