Building Economic Mobility: Addressing Wealth Inequality and Protecting Tax Credits

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

2. 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

3. The Wealth Gap

4. The Racial Wealth Gap • Communities of color are disproportionately affected by America’s wealth inequality and asset poverty.

5. President Trump’s Tax Reform Plan

6. 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

7. 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

8. An Unfair Distribution in Tax Cuts Source: Institute on Taxation and Economic Policy

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

10. 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.

11. 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.

12. The Child Tax Credit (CTC) 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.

13. 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.

14. Data from unpublished reports by CBPP and partners Impact of EITC Expansion

15. Threats: The Fiscal Year 2018 Budget

16. 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

17. Budget Process

18. 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

19. But there is good news…

20. 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!

21. 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

22. 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

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