Using Refundable Tax Credits to Help Low-income Taxpayers

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 http://dx.doi.org/10.1787/420888675468

3. Income Inequality, cont. http://dx.doi.org/10.1787/421061637532

4. Inequality and Redistribution

5. Inequality & Child Poverty in Selected Countries

6. Social Spending & Child Poverty in Selected Countries

7. Redistribution through Cash Transfers & Taxes http://dx.doi.org/10.1787/422058728151

8. Tax-to-GDP Ratios, 2006

9. U.S. Standard Deductions, Personal Exemptions, and Simple Income Tax Thresholds, 2009

10. Tax Rate Schedules for Various Taxpayers, 2009

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

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

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

14. Poverty Levels & Net Federal Tax Thresholds, 2009

15. Taxes at Poverty Level, 2009

17. Outlays for the Principal Federal Benefit Programs in the United States (billions of dollars)

18. U.S.: Share of Household Income & Gini Index, 2005

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

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

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

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

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)

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, 405-325-4779 • These slides at www.law.ou.edu/faculty/forman.shtml