Daily Deduction

from the Tax Policy Center

Congress Is Back with Much To Do and Consider

By :: July 7th, 2014

On the Hill this week: The House may vote to make bonus depreciation permanent. The Senate Finance Committee may present a transportation funding plan reflecting a compromise with the House Ways and Means Committee. The House Oversight and Government Reform Committee has scheduled a hearing on incorrect Earned Income Tax Credit payments.

There’s a better way for Congress to expand the Child Tax Credit. Representative Lynn Jenkins’ bill to expand the credit would give two-thirds of the credit’s benefits to workers in the top 40 percent of the income distribution. TPC’s Elaine Maag shows how Congress could instead allow the credit for the first dollar earned. The cost would be the same, but it would give two-thirds of the credit’s benefits to the workers in the lowest 20 percent of the income distribution.

Will Congress fix a few tax math errors to recoup $5 billion over the next decade? The Self-Employment Contributions Act, or SECA, passed in 1954 to parallel the FICA payroll tax. But it’s not parallel, thanks to three long-standing math errors that Congress has never gotten around to fix. TPC’s Jim Nunns shows that as a result, some highly paid business owners enjoy a tax bonanza of over $20,000 a year.

Not enough of us are saving for retirement. Better tax policy could help. Few American workers make maximum contributions to their 401(k)-type retirement plans. Worse, most tax subsidies aimed at boosting retirement savings go to high-income workers and only a small share helps low- or middle-income earners. What if the tax benefits of retirement savings were better targeted to those who need it the most? A new TPC report by Barbara Buttrica, Ben Harris, Pamela Perun, and Gene Steuerle offers some solutions.

The President’s Budget would do what the President promised, tax-wise. TPC estimates that low-income households would enjoy a tax cut while those at the top of the income distribution would pay more. Beyond its distributional analysis, TPC’s Elaine Maag, Jim Nunns, Eric Toder, and Bob Williams examined four new tax proposals in the President’s plan that expand the earned income tax and child and dependent care tax credits, conform rules for SECA taxes, and change business taxes to help fund business tax reform.

Abroad, the European Union is sharpening its focus on multinationals’ tax avoidance. The EU may have Luxembourg in its sights, in addition to Ireland. Tax laws in Luxembourg have helped attract more than 40,000 holding companies and thousands of high-paying jobs. The tiny nation has a population of less than 500,000.

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2Comments

  1. Michael Bindner  ::  2:21 am on July 8th, 2014:

    The House making the bonus depreciation deduction permanent is probably a good thing, even if not paid for, since it is not paid for now as a temporary measure. If Finance and Ways and Means have worked out a deal on infrastructure, only the Tea Part could stop it. Lets hope they do not – let them watch the Issa EITC hearings and go on FoxNews to bloviate. I’m all for ending the EITC if we substitute a higher minimum wage, credit the FICA employer contribution equally and put both a higher floor and a lower ceiling on the employee contribution.

    I care little about whether the cap is higher or not on the Child Tax Credit – espeicially if taking off the cap gets the wealthy to support it universally – and support making it refundable at $1000 a month.

    I doubt the SECA fixes will occur as long as the errors benefit their biggest donors. Replacing the whole regime of taxing smal firms throught their personal income taxes and replacing it with a separate consumption tax – a net business receipts tax which is a VAT with deductions, will fix it – as well ast the CTC inadequacy problem.

    The biggest solution to our retirement problems is shifting at least some, if not all, of FICA’s employer contribution to insured shares of employer voting stock – distributed equally rather than as a function of income. Indeed, all the other accounts will no longer be necessary – or possible – if most shares of companies are private.

    That the PB for FY15 adds up is not a surprise. Treasury and OMB have the best (with apologies to TPC analysts). Sadly, that won’t make passage any easier – especially in an election year.

    The EU will only solve their part of the problem by having a single executive, single income tax, single debt and a unified financial regulatory system – which would be disasterous to the US dollar and debt because then they would be a real option for world currency. I don’t expect that kind of bold action soon. Of course, if the US passed a law saying you pay taxes where your CEO works, and your CEO must work here if the bulk of your operation and sales are here, it would be Ireland and Luxembourg’s loss. A VAT might have some of the same effect. So might more employee ownership and control – it produces a different midset and there are no holding companies.

  2. 情趣用品  ::  9:38 am on September 10th, 2014:

    Great article, thank You !!