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November 15, 2019

In Potential Year-end Tax Legislation, Federal Lawmakers Must Remember to Support Families

A fair economy that works for everyone means families are able to provide for themselves and their children. That means having enough food to eat, reliable transportation, and other necessities. Yet economic progress at the state level has not benefited everyone and that progress may be stalling: poverty rates remain well above pre-recession levels and income inequality is increasing, despite the continued economic expansion. When it comes to federal policy solutions, Virginia’s congress members have an opportunity to boost family incomes across the state.

Federal lawmakers have signaled interest in revisiting aspects of the 2017 federal tax law, and bipartisan tax legislation may be included in a final end-of-year federal spending package. Lawmakers should take a broad view of the tax law’s fundamental problems. At its core, the 2017 tax law included large tax cuts for corporations and wealthy Americans. In contrast, the law largely left out millions of children in families with low incomes. That includes about 200,000 children in Virginia who did not see the full benefit of the increased Child Tax Credit (CTC).

As end-of-year legislative negotiations continue, restaurants, retail stores, and certain energy interests are pushing Congress for tax breaks, some of which are tied to the 2017 federal tax law.

If Congress is going to consider business priorities, federal lawmakers should use this opportunity to support families with low and moderate incomes who did not benefit much — if at all — from the 2017 federal changes. That includes many people who themselves work in the restaurant or retail industries. In Virginia, about 47,000 adults without children at home and who work in those industries are currently taxed into or deeper into poverty.

One promising idea would be to include a proposal like The Economic Mobility Act as part of any end-of-year package. The Economic Mobility Act passed the House Ways and Means Committee over the summer and would make sure all families with low incomes can receive the full value of the CTC while also boosting the federal Earned Income Tax Credit (EITC).

Right now, over 600,000 of Virginia’s working families receive the federal EITC, and about 400,000 families receive the refundable portion of the federal CTC. These credits are successful at supporting many working families, and by building upon them, they could go even further. A stronger federal EITC would help more working people with low incomes who are not raising children at home. In addition, lawmakers are considering loosening the tight age restrictions that exclude working people younger than 25 or older than 65 from receiving the credit.

Meanwhile, a stronger CTC would finally provide the full CTC to all families with low incomes. For families in the lowest 20% of the population by income, about a quarter of families with children do not receive the CTC, due to current restrictions. This compares to the 90% of families with children in the middle 60% who receive the CTC. Lifting these restrictions would allow families with the lowest incomes to receive the full $2,000 value of the CTC (per child).

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Enacting these improvements could help to address the impacts of wage and income inequality. For working people of color, present-day inequalities are the direct result of a history of discrimination and exclusion that continues to persist in schooling, housing, the labor market, and other areas. Data from 2015 show that 77% of Black households and 73% of Latinx households in Virginia were in the bottom 60% of income, compared with 54% of white households. To meaningfully address the root causes of inequality, policymakers must adopt policy changes across issues and at all levels of government. Smarter federal tax policy choices should be part of that work.

As federal lawmakers revisit the 2017 federal tax law, they should confront its many flaws. Any proposal to help restaurant and retail owners or energy industry interests should also include benefits for working people. We ask that Virginia’s Congress members stand with Virginia’s families as part of any end-of-year tax package.

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Category:
Economic Opportunity

Chris Wodicka

wodicka@thecommonwealthinstitute.org

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