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President Trump's Tax Relief Will Ease The Tax Burden On Low-Income Americans

- October 17, 2017

President Trump's Tax Framework Will Expand The Child Tax Credit, Double The Standard Deduction, And Raise Wages For Hard Working Americans

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TOP TAKEAWAYS

  • President Trump's tax relief framework will increase the Child Tax Credit "significantly," rewarding families for hard work while also improving quality of life for children in low-income households.
  • The Child Tax Credit and other refundable credits lifted 8.2 million Americans out of poverty in 2016, and children in households that receive the credit are more likely to attend college.
  • President Trump's tax relief framework nearly doubles the standard deduction, a move that will reduce the tax burden on low to moderate income families.
  • If the corporate tax rate were reduced to 20 percent as proposed by President Trump, wage growth could increase by 2.8 percent, significantly increasing wages for lower-income earners.

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PRESIDENT TRUMP'S TAX RELIEF PROPOSAL WILL EXPAND THE POPULAR CHILD TAX CREDIT, DELIVERING RELIEF TO HARDWORKING AMERICAN FAMILIES

A Key Part Of President Trump's Tax Relief Package Is Expanding The Child Tax Credit

Currently, An Individual May Receive Up To $1,000 For Each Qualifying Child Under The Child Tax Credit. "With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17." ("Ten Facts about the Child Tax Credit," Internal Revenue Service , 2/10/11)

The Credit Begins To Phase Out At $75,000 For Individual Taxpayers And $110,000 For Married Taxpayers Filing Jointly. "The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe." ("Ten Facts about the Child Tax Credit," Internal Revenue Service , 2/10/11)

President Trump's Tax Framework Will Significantly Increase The Child Tax Credit And The First $1,000 Will Be Refundable. "To further simplify tax filing and provide tax relief for middle-income families, the framework repeals the personal exemptions for dependents and significantly increases the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law." ("Unified Framework For Fixing Our Broken Tax Code," Committee On Ways And Means , 9/27/17)

  • Additionally, The Credit Will Begin To Phase Out At Income Levels Higher Than The Previous Code, Ensuring That More Middle-Income Families Benefit From The Credit. "In addition, the framework will increase the income levels at which the Child Tax Credit begins to phase out. The modified income limits will make the credit available to more middle-income families and eliminate the marriage penalty in the existing credit." ("Unified Framework For Fixing Our Broken Tax Code," Committee On Ways And Means , 9/27/17)

The Child Tax Credit Rewards Work And Benefits Low-Income Families, Particularly Children

A Child Tax Credit Is Available To Only Working Families And Phases In As Earnings Increase. "The CTC is newer and has not been studied to the same extent, but it shares key design features with the EITC: it is available only to working families and phases in as earnings increase." (Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon Debot, "EITC And Child Tax Credit Promote Work, Reduce Poverty, And Support Children's Development, Research Finds," Center On Budget And Policy Priorities , 10/1/15)

Refundable Credits Like The Child Tax Credit Are Popular And Enjoy Bipartisan Support Because They "Reward Work And Alleviate Poverty." "Refundable tax credits like the CTC and EITC have enjoyed bipartisan support in the past because they reward work and alleviate poverty. People only get the money back on their taxes if they have a job and earned some money that year." (Heather Long, "The Simple Way To Tell Whether Trump's Tax Plan Is For The 'Little Guy' Or The 1 Percent," The Washington Post , 9/19/17)

The Child Tax Credit Combined With Other Refundable Credits Lifted 8.2 Million Americans Out Of Poverty In 2016 According To The U.S. Census Bureau Report On Poverty. "The CTC and EITC have also done exactly what they were intended to do: lift millions of people out of poverty. The latest report on poverty in America from the U.S. Census Bureau came out last week. It showed that refundable tax credits lifted 8.2 million Americans out of poverty in 2016, making the credits the second-best poverty reduction program in the United States after only Social Security." (Heather Long, "The Simple Way To Tell Whether Trump's Tax Plan Is For The 'Little Guy' Or The 1 Percent," The Washington Post , 9/19/17)

The Earned Income Tax Credit And The Child Tax Credit Combined Lifted 9.8 Million Americans Out Of Poverty In 2015. "The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) together lifted 9.8 million Americans out of poverty last year and made 22.0 million others less poor, CBPP analysis of new Census data shows. The data allow us to measure of the impact of the entire credits - including both the refundable and non-refundable pieces of the CTC, in addition to the EITC." (Emily Horton, "EITC, CTC Together Lifted 9.8 Million Out Of Poverty In 2015," Center On Budget And Policy Priorities , 10/19/16)

Research From The Center On Budget And Policy Priorities Suggests The Child Tax Credit Leads To Improved Educational Outcomes For Young Children In Low-Income Households. "Moreover, research suggests that income from the EITC and CTC leads to improved educational outcomes for young children in low-income households. For each $1,000 increase in annual income over two to five years, children's school performance improves on a variety of measures, including academic test scores. A credit that's worth about $3,000 (in 2005 dollars) during a child's early years may boost his or her achievement by the equivalent of about two extra months of schooling." (Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon Debot, "EITC And Child Tax Credit Promote Work, Reduce Poverty, And Support Children's Development, Research Finds," Center On Budget And Policy Priorities , 10/1/15)

  • Children Whose Families Receive More Money From Refundable Tax Credits Do Better In School, Are More Likely To Attend College, And Earn More As Adults. "The credits' success in boosting work effort and earnings extends into the next generation, the new research indicates. Children whose families receive more income from refundable tax credits do better in school, are likelier to attend college, and likely earn more as adults." (Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon Debot, "EITC And Child Tax Credit Promote Work, Reduce Poverty, And Support Children's Development, Research Finds," Center On Budget And Policy Priorities , 10/1/15)

The Child Tax Credit Is Popular And Has Enjoyed Bipartisan Support

Refundable Credits Like The Child Tax Credit Have Enjoyed Bipartisan Support. "Refundable tax credits like the CTC and EITC have enjoyed bipartisan support in the past because they reward work and alleviate poverty. People only get the money back on their taxes if they have a job and earned some money that year." (Heather Long, "The Simple Way To Tell Whether Trump's Tax Plan Is For The 'Little Guy' Or The 1 Percent," The Washington Post , 9/19/17)

In June 2017, Senators Tammy Duckworth (D-IL) And Sherrod Brown (D-OH) Introduced Legislation To Strengthen The Child Tax Credit. "U.S. Senator Tammy Duckworth (D-IL) joined U.S. Senator Sherrod Brown (D-OH) this week in reintroducing legislation to support working families in Illinois and across the country by expanding two anti-poverty tax credits. The Working Families Tax Relief Act of 2017 will expand eligibility for the Earned Income Tax Credit (EITC) to more Americans while making it easier to claim it, strengthen the Child Tax Credit (CTC) and also help ensure the federal tax system does not force hardworking Americans into poverty." (Press Release, "Duckworth Helps Reintroduce Legislation To Expand Earned Income Tax Credits For Working Families," Sen. Tammy Duckworth , 6/23/17)

Senator Elizabeth Warren (D-MA) Spoke About Refundable Credits, Including The Child Tax Credit, Saying Without Them "More Than Fifty Million Low-Income Americans - Including 25 Million Children - Could See Sharp Cuts In Their Income." "Critical parts of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), tax credits that boost wages for low - and moderate - income working families, are set to expire soon. If they are not renewed, more than fifty million low-income Americans - including 25 million children - could see sharp cuts in their income, making it more difficult to make ends meet and, for some, triggering a fall into poverty." (Press Release, "Benefits Of Preserving And Extending Tax Credits For Families," Sen. Elizabeth Warren , 12/3/15)

House Minority Leader Nancy Pelosi Said Of President Obama's Proposal To Increase The Credit In 2015, "The President's Plan To Increase The Child Care Tax Credit Would Make Child Care Significantly More Affordable For Millions Of Families." "The President's plan to increase the child care tax credit would make child care significantly more affordable for millions of families, while building on earlier Administration efforts to make high-quality early education and child care available for all." (Press Release, "Pelosi Statement On President's New Child Care Initiative," Rep. Nancy Pelosi , 1/22/15)

There Is "Intense Interest" Among Republicans About Raising The Child Tax Credit With Senators Marco Rubio (R-FL) And Mike Lee (R-UT) "Leading The Charge." "While the EITC hasn't gotten much attention, Strain says there is "intense interest" on the GOP side to raise the CTC, which is worth up to $1,000 per child. Ivanka Trump and Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.) are leading the charge. Lee and Rubio have been pushing a plan for the past several years that would increase the CTC to $2,500 per child." (Heather Long, "The Simple Way To Tell Whether Trump's Tax Plan Is For The 'Little Guy' Or The 1 Percent,"" The Washington Post , 9/19/17)

THE PRESIDENT'S PLAN WILL ROUGHLY DOUBLE THE STANDARD DEDUCTION, PUTTING MONEY BACK INTO THE POCKETS OF LOW TO MODERATE INCOME AMERICANS

President Trump's Tax Framework Would Almost Double The Current Standard Deduction For Both Married And Single Filers

The Standard Deduction Is Roughly Doubled To $12,000 For Single Filers And $24,000 For Married Filers. "The framework simplifies the tax code and provides tax relief by roughly doubling the standard deduction to: $24,000 for married taxpayers filing jointly, and $12,000 for single filers." ("Unified Framework For Fixing Our Broken Tax Code," Committee On Ways And Means , 9/27/17)

  • The Existing Standard Deduction Is $6,300 For Individuals And $12,600 For Married Couples Filing Jointly. "The existing standard deduction Americans can claim is $6,300 for individuals and $12,600 for married couples filing jointly." (Damian Paletta and Steven Mufson, "Trump To Propose Large Increase In Deductions Americans Can Claim On Their Taxes," The Washington Post , 4/25/17)

Increasing The Standard Deduction Would Benefit Low And Moderate Income Families

President Trump's Expansion Of The Standard Deduction Means That No Married Couple Earning Less Than $24,000 Or Single Filer Earning Less Than $12,000 Will Pay Any Federal Income Tax. "In combination, these changes simplify tax filing and effectively create a larger 'zero tax bracket' by eliminating taxes on the first $24,000 of income earned by a married couple and $12,000 earned by a single individual." ("Unified Framework For Fixing Our Broken Tax Code," Committee On Ways And Means , 9/27/17)

The Standard Deduction Would Double, "As A Result, Many More Low To Moderate Income Families Would Pay No Taxes." "The standard deduction, currently $6,350 for single people and $12,700 for married couples, would double. As a result, many more low to moderate income families would pay no taxes" (Paul Davidson, "How Trump's Tax Plan Would Affect Households," USA Today , 4/26/17)

President Trump's Proposed Increase In The Standard Deduction Could "Potentially Pu[t] Thousands Of Dollars Each Year Into The Pockets Of Tens Of Millions Of Americans." "President Trump on Wednesday plans to call for a significant increase in the standard deduction people can claim on their tax returns, potentially putting thousands of dollars each year into the pockets of tens of millions of Americans, according to two people briefed on the plan." (Damian Paletta and Steven Mufson, "Trump To Propose Large Increase In Deductions Americans Can Claim On Their Taxes," The Washington Post , 4/25/17)

The 70 Percent Of Americans Who Currently Take The Standard Deduction, Mostly Low And Moderate Income Taxpayers, Would Benefit. "About 70% of Americans, mostly low- to moderate-income, currently take the standard deduction and would benefit, Viard says. Many of the remaining 30% who itemize, largely higher income households, would likely switch to the standard deduction, leaving only about 5% itemizing, he says. Some wealthier Americans could end up paying higher taxes, though most would save." (Paul Davidson, "How Trump's Tax Plan Would Affect Households," USA Today , 4/26/17)

PRESIDENT TRUMP'S TAX FRAMEWORK WILL JUMPSTART WAGE GROWTH THAT HAS PREVENTED MANY FROM ENJOYING ECONOMIC PROSPERITY

A Cornerstone Of President Trump's Tax Framework Is Reducing A Harmful Corporate Tax Burden That Depresses Wages

President Trump's Tax Framework Would Reduce The Tax Corporate Tax Rate To 20 Percent. "The framework reduces the corporate tax rate to 20% - which is below the 22.5% average of the industrialized world. In addition, it aims to eliminate the corporate AMT, as recommended by the non-partisan JCT. The committees also may consider methods to reduce the double taxation of corporate earnings." ("Unified Framework For Fixing Our Broken Tax Code," Committee On Ways And Means , 9/27/17)

The U.S. Corporate Tax Rate Is 16.4 Percent Higher Than The Worldwide Average And This Disparity Has Grown In Recent Years. "The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm." (Kyle Pomerlau, "Corporate Income Tax Rates Around The World, 2016," Tax Foundation , 08/18/16)

A High Corporate Tax Burden Harms Economic Growth, Investment, And Wages Of U.S. Workers. "Finally, the repatriation tax policy would contribute to reducing the corporate tax burden at a time when the high U.S. rate harms economic growth, the amount and quality of U.S. investment, and the wages of U.S. workers." (Douglas Holtz-Eakin, "The Need for Pro-Growth Corporate Tax Reform," United States Chamber Of Commerce , 8/11)

A National Bureau Of Economic Research Study Found High Corporate Income Taxes Depress Union Wages. "High corporate income taxes reduce the after-tax profits of firms earning rents, which are the same firms that are in positions to pay above-market wages to their employees. Since high taxes mean that there is less for everyone, it can hardly be surprising that high taxes ultimately depress union wages, particularly in capital-intensive industries where corporate taxes have the most impact on a firm's bottom line." (R. Alison Felix and James R. Hines Jr, "Corporate Taxes And Union Wages In The United States," National Bureau Of Economic Research , 8/09)

  • According To The National Bureau Of Economic Research, It Is Reasonable To Expect That The Same Effect Would Also Appear In Non-Union Wages. "But to the extent that there is a rent-sharing aspect of wages in settings without labor unions, it may be reasonable to expect that the same dynamics would appear, in that higher taxes would be associated with reduced wages." (R. Alison Felix and James R. Hines Jr, "Corporate Taxes And Union Wages In The United States," National Bureau Of Economic Research , 8/09)

Corporate Tax Cuts Translate Into Higher Wages And Increased Standards Of Living, Particularly For Lower-Income Families

Reducing The Federal Corporate Tax Rate From 35 To 20 Percent Would Increase The Average Household Income $4,000 By A Conservative Estimate. "Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually. The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than $4,000. Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger." ("Corporate Tax Reform And Wages: Theory And Evidence" The Council Of Economic Advisors , 10/17)

Reducing The Corporate Tax Rate To 20 Percent Would Increase Wages By 2.8 Percent. "If lawmakers were to cut the 35 percent U.S. corporate rate to the OECD average, it would raise the overall wage rate by 1.9 percent over the long-term and create 425,000 full-time equivalent jobs. By contrast, adopting the UK rate of 20 percent would lift wages by 2.8 percent over the long-term and create more than 600,000 jobs." (Scott A. Hodge, "The Economic Effects Of Adopting The Corporate Tax Rates Of The OECD, The UK, And Canada," Tax Foundation , 8/15)

Cutting The Corporate Tax Rate Increases The Income For All Families, But There Is A More Significant Effect At Lower-Income Levels. (Scott A. Hodge, "The Economic Effects Of Adopting The Corporate Tax Rates Of The OECD, The UK, And Canada," Tax Foundation , 8/15)

Cutting The Corporate Tax Rate Raises The Wages Of Both Low And High Skill Workers. "Although the wage effects for workers may theoretically differ across the skill distribution, recent research finds that corporate tax reductions serve to raise wages of both low- and high-skilled workers (Felix, 2007). Thus, reductions in the corporate tax rate may offer a potent solution to the tepid wage growth experienced by U.S. workers over the past several years." ("Corporate Tax Reform And Wages: Theory And Evidence" The Council Of Economic Advisors , 10/17)


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