1. Using Refundable Tax Credits to Help Low- income Taxpayers Tax Expenditures and Public Policy in Comparative Perspective Osgoode Hall Law School Toronto, Canada by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma

2. Income Inequality Gini coefficient Interdecile ratio P90/P10 Interdecile ratio P50/P10 LevelRankLevelRankLevelRank Australia0.30163.95152.0918 Canada0.32184.12172.1420 Mexico0.47308.53302.8630 Sweden0.2322.7921.721 United Kingdom0.34234.21181.9915 United States0.38275.91272.6929 OECD-300.31..4.162.09.. 2 http://dx.doi.org/10.1787/420888675468

3. Income Inequality, cont. Interquintile share ratio (S80/S20) Interdecile ratio (P90/P10) Australia 4.84.0 Canada 5.24.1 Mexico12.18.5 Sweden 3.32.8 United Kingdom 5.44.2 United States 7.95.9 OECD-30 5.34.1 3 http://dx.doi.org/10.1787/421061637532

4. Inequality and Redistribution Country Gini Before Gini After Poverty Before (50% of median income) Poverty After (50% of median income) Tax %GDP Social Spending %GDP Australia0.460.328.612.430.617.1 Canada0.440.3223.112.033.316.5 Mexico n/a0.4721.018.420.67.0 Sweden0.430.2326.75.349.129.4 United Kingdom0.460.3426.38.337.121.3 United States0.460.3826.317.128.015.9 OECD0.450.3126.410.635.920.5 4

5. 5 Inequality & Child Poverty in Selected Countries

6. 6 Social Spending & Child Poverty in Selected Countries

7. Redistribution through Cash Transfers & Taxes Transfers to lowest quintile Taxes from lowest quintile Net transfers to lowest quintile Australia5.90.25.8 Canada3.50.62.9 Korea0.90.50.4 Sweden8.52.85.7 United Kingdom4.60.44.1 United States2.30.41.9 OECD-235.41.24.2 7 http://dx.doi.org/10.1787/422058728151

8. Tax-to-GDP Ratios, 2006 Country Income Taxes Payroll taxes Consumption Taxes Total Taxes Australia18.1- 8.330.6 Canada16.2 4.9 8.133.3 United Kingdom14.7 6.910.837.1 United States13.5 6.7 4.728.0 OECD Total13.0 9.111.135.9 8

9. U.S. Standard Deductions, Personal Exemptions, and Simple Income Tax Thresholds, 2009 Unmarried individuals Heads of household with one child Married couples filing joint returns with two children Standard deduction $5,700$ 8,350$11,400 Personal exemptions $3,650$ 7,300$14,600 Simple income tax threshold $9,350$15,650$26,000 9

10. Tax Rate Schedules for Various Taxpayers, 2009 10 Tax rate Rate bracket Unmarried individuals Heads of household with one child Married couples filing joint returns with two children 10$0 to $8,350$0 to $11,950$0 to $16,700 15$8,350 to $33,950$11,950 to $45,500$16,700 to $67,900 25$33,950 to $82,250$45,500 to $117,450$67,900 to $137,050 28$82,250 to $171,550$117,450 to $190,200$137,050 to $208,850 33$171,550 to $372,950$190,200 to $372,950$208,850 to $372,950 35Over $372,950

11. “Making Work Pay” Credit  New refundable credit  I.R.C. § 36A (ARRA §1001)  Will cut taxes for working families  Up to $400 ($800 if MFJ) Computed as 6.2 percent of earned income up to $400 ($800 if MFJ)  Phase out for taxpayers with modified AGI > $75,000 ($150,000 MFJ)  Claim credit on 2009 tax return  Tax withholding decrease 11

12. Earned Income Tax Credit (EITC) Increase  New credit percentage for 3 or more qualifying children I.R.C. § 32 (ARRA § 2002) Temporary increase 2009 & 2010 Computed as 45% of earnings (up from 40%)  Maximum credit increase = $5,028 to $5,657  Maximum AGI increase = $43,415 to $48,279 12

13. Child Tax Credit  $1,000 per qualifying child I.R.C. § 24 (ARRA § 1003)  Temporary expansion of eligibility for refundable credit  More lower income families qualify: 2008 – threshold amount was = $8,500 2009 – threshold amount = $3,000 2010 – threshold amount = $3,000 13

14. Poverty Levels & Net Federal Tax Thresholds, 2009 Unmarried individual Single parent with 1 child Married couple with 2 children Married couple with 3 children 1. Poverty levels$10,830$14,570$22,050$25,790 2. Simple income tax threshold (before credits) $9,350$15,650$26,000$29,650 3. Income tax threshold after credits $13,391$32,317$50,233$60,550 4. Employee payroll tax threshold $0 5. Combined income and payroll tax threshold $9,336$25,667$38,592$43,743 14

15. Taxes at Poverty Level, 2009 15 Unmarried individual Single parent with 1 child Married couple with 2 children Married couple with 3 children 1. Poverty levels$10,830$14,570$22,050$25,790 2. Income tax at poverty level (after credits) -$452-$4,443-$7,695-$8,537 3. Employee Social Security & Medicare tax at poverty level $829$1,115$1,687$1,973 4. Combined income and payroll tax at poverty level $377-$3,328-$6,008-$6,564 5. Combined tax as a percent of income at poverty level 3.5%-22.8%-27.2%-25.5%

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17. Outlays for the Principal Federal Benefit Programs in the United States (billions of dollars) 2008 actual2014 estimate Social Security$612$838 Medicare 385630 Medicaid 201326 Unemployment compensation 4348 Supplemental Security Income3849 Earned income tax credit 4143 Child tax credit3424 Making work pay tax creditn/a20 Food assistance 5479 Family support2524 Housing assistance <18 Retirement and disability programs for civilians, military and veterans 155 217 17

18. U.S.: Share of Household Income & Gini Index, 2005 Market incomeDisposable income Quintiles Lowest1.504.42 Second7.269.86 Middle14.0015.33 Fourth23.4123.11 Highest53.8347.28 Gini Index0.4930.418 18

19. Canada  Canada Child Tax Benefit (CCTB) C$111.66 for each child under age 18  National Child Benefit Supp. (NCBS) Up to C$173.00 per month  Child Disability Benefit (CDB) Up to C$204.58 per month  Universal Child Care Benefit (UCCB) C$1,200 per year for children under 6 19

20. Canada, cont.  Working Income Tax Benefit (WITB) refundable tax credit of 25% of earned income in excess of C$3,000 maximum of C$925 for individuals (C$1,680 for single parents and couples)  Refundable Goods and Services Tax Credit C$248 for taxpayer, spouse or partner C$130 for each child 20

21. United Kingdom  Child Benefit £20/week oldest child; £13.20 others  Child Tax Credit £545 per year/family+ £2,235/child  Working Tax Credit £1,890 per year per worker + 80% × child care, up to £175/week for 1 child; £300/week for 2+ children 21

22. Australia  Family Tax Benefit Part A: up to A$4,803.40 child under 13; A$6033.45 child 13-15; etc. Part B: extra help for low-income single parents & families with one main income  Child Care Tax Rebate  Baby Bonus $5,185, paid in 13 fortnightly installments 22

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24. How an Integrated Tax & Transfer System Would Affect a Single Parent with 2 Children ($2,000 Personal Tax Credits, $2,000 per Worker Credits, and 20 & 35% Tax Rates) Pre-transfer earnings Plus personal tax credits Plus worker credit Less tax imposed After-tax income 0 $6,000 0 0 $10,000 $6,000$2,000 $16,000 $20,000 $6,000$2,000 $4,000 $24,000 $50,000 $6,000$2,000 $10,000 $48,000 $100,000 $6,000$2,000 $27,500 $80,500 $200,000 $6,000$2,000 $62,500$145,500 24

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26. About the Author  Jonathan Barry Forman (“Jon”) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law, teaching tax and pension law; the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year; and the author of Making America Work (Washington, DC: Urban Institute Press, 2006).  Prior to entering academia, Professor Forman served in all three branches of the federal government. He has a law degree from the University of Michigan and master’s degrees in both economics and psychology.  Jon can be reached at jforman@ou.edu, 405-325-4779jforman@ou.edu  These slides at www.law.ou.edu/faculty/forman.shtmlwww.law.ou.edu/faculty/forman.shtml 26