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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 & ATAX Fellow, UNSW University of Melbourne Melbourne, Australia August 16, 2011. U.S.: Share of Household Income & Gini Index, 2005.

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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 & ATAX Fellow, UNSW University of Melbourne Melbourne, Australia August 16, 2011

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

  3. Rising Inequality

  4. Inequality and Redistribution

  5. U.S. Average Annual Earnings of Full-time Workers, 2008

  6. Distribution of Earnings, 2004

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

  8. U.S. Standard Deductions, Personal Exemptions, and Simple Income Tax Thresholds, 2011 Rev. Proc. 2011-12, 2011-2 IRB 297, http://www.irs.gov/pub/irs-irbs/irb11-02.pdf.

  9. Tax Rate Schedules for Various Taxpayers, 2011 Rev. Proc. 2011-12, 2011-2 IRB 297, http://www.irs.gov/pub/irs-irbs/irb11-02.pdf.

  10. Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 10, http://finance.senate.gov/imo/media/doc/120210DEtest.pdf.

  11. Center on Budget and Policy Priorities, Top Ten Tax Charts (April 14, 2011), http://www.offthechartsblog.org/top-ten-tax-charts/.

  12. Productivity and Real Income 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php.

  13. Rising Poverty U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Current Population Report No. P60-238, September 2010), http://www.census.gov.

  14. Earned Income Tax Credit (EITC) Increase • Relatively new credit percentage for 3 or more qualifying children • I.R.C. § 32 • Temporary increase 2009-2010, extended 2011-2012 • 45% of earnings (up from 40%) • Maximum credit increased to $5,751 in 2011 • Maximum AGI increased to $49,078 in 2011 Rev. Proc. 2011-12, 2011-2 IRB 297, http://www.irs.gov/pub/irs-irbs/irb11-02.pdf.

  15. Child Tax Credit • $1,000 per qualifying child • I.R.C. § 24 • Temporary expansion of eligibility for refundable credit (15% × earned income minus $3,000 threshold) • More lower income families qualify: • 2008 – threshold amount was = $8,500 • 2009-2012 – threshold amount = $3,000

  16. Poverty Levels & Net Federal Tax Thresholds, 2010

  17. Taxes at Poverty Level, 2010

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

  19. Canada 2010 • 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

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

  21. United Kingdom 2010 • 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

  22. Australia 2010 • 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

  23. Australia 2011: Add a Carbon Tax, but: • Triple the tax-free threshold to $18,200 • Which will replace all but $445 of the low-income tax offset (LITO) • Improve work incentives @ low incomes • Remove one million taxpayers • Increase Government payments • Pensions, allowances and Family Tax Benefit http://www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/securing-a-clean-energy-future-summary.pdf

  24. Securing a Clean Energy Future http://www.cleanenergyfuture.gov.au/wp-content/uploads/2011/07/securing-a-clean-energy-future-summary.pdf

  25. http://www.futuretax.gov.au/content/TaxForum/discussion_paper/tax_forum_next_steps_for_Australia_20110729.pdfhttp://www.futuretax.gov.au/content/TaxForum/discussion_paper/tax_forum_next_steps_for_Australia_20110729.pdf

  26. 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)

  27. About the Author • Jonathan Barry Forman (“Jon”) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law and the author of Making America Work (Washington, DC: Urban Institute Press, 2006). • Jon was the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year. • Jon can be reached at jforman@ou.edu, +1-405-325-4779, www.law.ou.edu/faculty/forman.shtml. 42

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