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Using Refundable Tax Credits to Help Low-income Taxpayers

Using Refundable Tax Credits to Help Low-income Taxpayers. by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma Tax Policy Colloquium Loyola Law School Los Angeles, California August 30, 2010. Income Inequality. http://dx.doi.org/10.1787/420888675468.

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Using Refundable Tax Credits to Help Low-income Taxpayers

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  1. Using Refundable Tax Credits to Help Low-income Taxpayers by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Norman, Oklahoma Tax Policy Colloquium Loyola Law School Los Angeles, California August 30, 2010

  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, 2007 Source: Organisation for Economic Co-Operation and Development, Tax revenue statistics, tables O.1, O.2, O.3, and O.5, http://www.oecd.org/document/60/0,3343,en_2649_34533_1942460_1_1_1_1,00.html#trs .

  9. U.S. Standard Deductions, Personal Exemptions, and Simple Income Tax Thresholds, 2010

  10. Tax Rate Schedules for Various Taxpayers, 2010

  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 2010 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 increased to $5,666 in 2010 • Maximum AGI increased to $48,362 in 2010

  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 and 2010 – threshold amount = $3,000

  14. Poverty Levels & Net Federal Tax Thresholds, 2010

  15. Taxes at Poverty Level, 2010

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

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

  18. Canada • Canada Child Tax Benefit (CCTB) • C$112.33 for each child under age 18 • National Child Benefit Supp. (NCBS) • Up to C$174.00 per month • Child Disability Benefit (CDB) • Up to C$205.83 per month • Universal Child Care Benefit (UCCB) • C$1,200 per year for children under 6

  19. 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$250 for taxpayer, spouse or partner • C$131 for each child

  20. United Kingdom • Child Benefit • £20.30/week oldest child; £13.40 others • Child Tax Credit • £545 per year/family+ £2,300/child • Working Tax Credit • £1,920 per year per worker • + 80% × child care, up to £140/week for 1 child; £240/week for 2+ children

  21. Australia • Family Tax Benefit • Part A: up to A$4,905.60 child under 13; A$6,161.20 child 13-15; etc. • Part B: extra help for low-income single parents & families with one main income • Baby Bonus • $5,294, paid in 13 fortnightly installments • Child Care Tax Rebate • 50 percent of out-of-pocket child care

  22. 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)

  23. $2,000 per Worker Earned Income Credit, with or without a Phase-out(Credit = 20% ×1st $10,000 of earnings)

  24. 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 author of Making America Work (Washington, DC: Urban Institute Press, 2006); and • was the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year. • 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 • Slides, etc. at www.law.ou.edu/faculty/forman.shtml

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