Proposed deal on tax cuts and unemployment insurance includes positives for low-income families
The agreement reached by President Obama and Republican leaders this week on the Bush Tax Cuts and several other issues – while substantially benefiting those with the highest incomes -- does have some positive provisions for low-to-middle income working families.
Disappointingly, the extension of all Bush Tax Cuts, which was set to expire on Dec. 31, includes breaks for those making more than $250,000 a year. Even worse, the Estate Tax proposal exempts estates from paying taxes on the first $5 million for individuals ($10 million for couples), and sets the tax rate on these estates at 35 percent—down from 45 percent in 2009.
But other provisions will make a very real and immediate difference in the lives of those struggling in this economy. The 13-month extension of Unemployment Insurance (which expired Nov. 30) is vital for millions of people out of work. The proposal also calls for a one-year reduction in the amount of payroll tax paid by employees.
Significantly, the package continues for two years all of the 2009 Recovery Act (ARRA) improvements that encourage work, support working families, help lessen child poverty and help more Americans to obtain a college education. If these credits were not extended, families with incomes between $12,850 and $17,340 would have been the ones to lose the most. Many of them are parents who work full time at minimum wage. (Note: in Washington State, the current minimum wage is $8.55 an hour; it is scheduled to go up to $8.67 an hour on January 1st).
The improvements would continue to provide:
- Key financial relief for working people
The Earned Income Tax Credit (EITC) is a federal tax credit for low- and moderate-income working people designed to encourage and reward work as well as offset payroll and income taxes.
In Washington State, there are 308,782 families who utilize the expanded EITC credit, which includes a total of more than half a million children. (Source: Citizens for Tax Justice)
- Financial aid to provide students with the opportunity to go to college
American Opportunity Tax Credit is available to millions of low- and moderate-income students. The maximum value is $2,500 and students can claim the credit for four years of education.
- Support for low- and moderate income families
The Child Tax Credit (CTC) covers the added costs of raising children while encouraging parents to work.
For example, under the current proposal, a single-parent working full-time for minimum wage with one child would be eligible for a $1,000 Child Tax Credit ($688.50 if allowed to expire).
The difference is even more striking in a family with two children-under this proposal the family would be eligible for a $2,000 credit. For families making $17,000 a year or less, this credit would have a substantial positive impact on their finances.
In today’s weak economy, these credits have a big impact not only for struggling working families but also for businesses in our state. These households use these credits to pay their mortgage or rent, to buy groceries, to pay utility bills and to provide other day-to-day necessities thereby bolstering the economy. According to the Congressional Budget Office, policies that increase the resources of families with lower incomes have a larger short-term economic impact than policies that increase resources for families with significantly higher incomes.