forTax Credits Working Families

A Resource for Policymakers, Advocates and the Media

Ideas fromthe Right

A Publication from

Conservative Approaches to Tax Credits for Working Families

taxcreditsforworkingfamilies.org

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Tax Credits for Working Families is a strategic

communications campaign working to promote

the Earned Income Tax Credit, Child Tax Credit

and other tax credits at the state and federal levels.

We offer communications support to advocates

and policymakers working to enact new tax

credits or improve existing ones. Our website

(www.taxcreditsforworkingfamilies.org) provides

information, resources and tools to help community-

based organizations and elected officials raise

awareness about these important tax credits and

help working families get ahead.

Tax Credits for Working Families is a non-partisan

initiative led by The Hatcher Group, a national

public affairs and communications firm that

connects nonprofit organizations to policymakers

and the media.

The Tax Credits for Working Families project is made

possible in part by support from The Annie E. Casey

Foundation, the Grantmakers Income Security Task

Force Communications Collaborative Rapid

Response Fund and other funders.

Learn more at taxcreditsforworkingfamilies.org.

U.S. States with a State Earned Income Tax Credit

About Tax Credits for Working Families

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The Earned Income Tax Credit (EITC) and the Child Tax Credit have long enjoyed bipartisan support, but 2013-2014 saw a marked increase in endorsements for these policies – particularly from conservative leaders. Sen. Mike Lee (R-Utah) and Rep. Lynn Jenkins (R-Kan.) each issued proposals to expand the federal Child Tax Credit and Rep. Paul Ryan (R-Wis.) called for an increased EITC for childless workers.

Further support was seen in a May 2014 collection of essays from conservative thought leaders called Room to Grow, which discussed policies to strengthen the middle class that included expanding the EITC and Child Tax Credit. The message underlying these proposals was clear: Despite ongoing Congressional deadlock, the two credits amount to a poverty-fighting strategy both parties can get behind.

In July 2014, Tax Credits for Working Families launched the commentary series “Ideas from the Right: Conservative Approaches to Tax Credits for Working Families.” The series was designed to highlight ideas from conservative policymakers and thought leaders on how to improve tax credits like the EITC and Child Tax Credit. Ideas from the Right sought to draw attention to the growing support for these credits at both the federal and state levels, while sparking discussion on the merits of different approaches and opportunities for consensus among conservatives and progressives.

The following collection of interviews and commentary provide insight into successful messaging strategies for reaching conservative audiences on the EITC and Child Tax Credit. The report should be useful to lawmakers, advocates and engaged citizens considering bipartisan strategies to improve tax credits for working families.

INTRODUCTION

Ideas from the Right

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GLENN HUBBARD

Reducing Income Inequality through the EITC

Tax Credits for Working Families sat down with economist Glenn Hubbard, dean of Columbia Business School and former Chairman of the Council of Economic Advisers under the Bush administration to discuss his views on reducing income inequality.

Tax Credits for Working Families: You’ve written on several occasions about using tax reform to reduce income inequality. Why do you think the tax code is the best vehicle for this endeavor?

Glenn Hubbard: I think the real issue in combating income inequality is to empower people toward work. A lot of people left the labor force as a result of the financial crisis, and monetary policy alone really isn’t going to bring those people back. It’s a structural problem, and we could assist it by providing direct support for work through the tax code.

TCWF: You propose expanding the Earned Income Tax Credit (EITC) for childless workers as one way to tackle income inequality through the tax code. Why the focus on this credit in particular?

GH: The EITC is already part of the tax code. The EITC started out as a method of providing direct support for work, but it has become more of a family support program. While it definitely makes sense to support families, we need to also strengthen the credit for single workers if we want to do more to encourage work.

TCWF: How would you suggest funding an expanded EITC for childless workers?

GH: I think it would have to be part of an overall tax reform package. Unfortunately, I don’t think the Obama administration is serious enough about tax reform to consider including an EITC increase in such a package.

TCWF: Do you think the push is more serious on the Republican side?

GH: On the House side, Paul Ryan has been eloquent in his support. On the Senate side, Marco Rubio has very interesting ideas. But to have any kind of tax reform, you need to have leadership from the administration.

TCWF: How has the conservative approach to the EITC evolved since your time as Chairman of the Council of Economic Advisers under the Bush administration?

GH: I think more people on the Republican side have started to realize the importance of encouraging and maintaining work. That’s always been something that I’ve felt is important, but I think now there’s a lot more emphasis on reforming programs, like the EITC, that encourage work.

TCWF: What messages around the economic impact of the EITC resonate well with conservatives?

GH: I think there are two messages that resonate well. One is defensive: the EITC is a good answer when the (much less good) idea of increasing the minimum wage comes up. If we, as taxpayers, believe that low-wage workers deserve a higher income, then we should all pay to make that happen. The burden shouldn’t be shifted to employers.

The second message is affirmative: that the EITC truly is our best option for supporting work.

September 2014

“The EITC truly is our best option for supporting work.”

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Ramesh Ponnuru, senior editor for National Review magazine, Bloomberg View columnist and visiting fellow at the American Enterprise Institute (AEI), shared his thoughts on the Child Tax Credit.

Tax Credits for Working Families: In a recent Bloomberg View piece, you suggest that a potential “sweet spot” for Republicans would be a proposal that both lowers the top tax rate and increases the federal Child Tax Credit. Why the focus on that credit in particular?

Ramesh Ponnuru: Raising children is, in no merely metaphorical or sentimental sense, an investment in the future. Federal policy doesn’t recognize that fact. Rather, it includes a large bias against raising children – an implicit tax on that activity, and the Child Tax Credit is a way of counteracting that.

TCWF: Do you think expanding the Child Tax Credit is a good issue for Republican congressional candidates to run on in 2014?

RP: I do. Expanding the credit is a good idea and it polls very well, particularly among groups that have tended to “resist the charms” of Republican candidates – it does well among women, among Hispanics, among those making $40-70,000 a year.

TCWF: Per Rep. Jenkins’ Child Tax Credit Improvement Act of 2014 – Do you think the 2009 Child Tax Credit improvements that made the credit available to more lower-income families should be allowed to expire as the credit is expanded for higher-income earners?

RP: My preference would be to make the Child Tax Credit available to anybody who pays either income tax or payroll tax. At the high end, that means making reforms along the lines of the Jenkins bill. I would actually go further – I’d get rid of the income limitations entirely. But at the low end, it should also mean letting the credit offset all payroll taxes, including the share of payroll taxes that employers pay.

TCWF: What areas of proposals to increase the Child Tax Credit seem to draw the most opposition from conservatives?

RP: Opposition from commentators tends to be centered on two ideas. The first is that the credit represents social engineering – it’s improper favoritism for some behavior over others and some people over others. The second is that it’s a distraction from using the tax code to encourage economic growth.

TCWF: Do you see opportunities for bipartisan consensus around how to fund a Child Tax Credit increase?

RP: I do, particularly in the way that Senator Mike Lee wants to expand the Child Tax Credit. He wants to pay for it by scaling back tax benefits for higher earners, but not raising their marginal tax rates. That’s a shift in tax policy that should appeal to conservatives and also ought to appeal to progressives because of its distributional effect.

September 2014

“Raising children is an investment in the future. Federal policy doesn’t recognize that fact.

Rather, it includes a large bias against raising children—an implicit tax on that activity, and the Child Tax Credit is a way of counteracting that.”

RAMESH PONNURU

Increasing the Child Tax Credit

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Yuval Levin is the founding editor of National Affairs, fellow at the Ethics and Public Policy Center, former White House domestic policy staffer under President George W. Bush and contributor for Room To Grow, a collection of essays from conservative thought leaders on policies to strengthen the middle class.

Tax Credits for Working Families: You served on the White House domestic policy staff under President George W. Bush. How has the conservative view on tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit evolved since that era?

Yuval Levin: The EITC and Child Tax Credit were both very important to the Bush administration. The EITC was expanded and reformed to address

the marriage penalty during the Bush years, and the Child Tax Credit was improved.

I think there was some falling-off of interest around these credits early in the Obama years as conservatives had what I’d call “bigger worries” – concerns with the administration in those first two years. But there’s certainly been a regenerated interest in the credits as conservatives start to look towards the future.

TCWF: How does increasing these credits help policymakers advance conservative goals?

YL: Conservatives are committed to an agenda that makes work pay, and that means providing benefits for low-income people that encourage them to work rather than creating incentives to drive them away from the workforce. That, of course, is the core idea behind the EITC – making work pay.

The Child Tax Credit, meanwhile, plays an important role in helping people get out of poverty, which it does very effectively. It also plays an important role in addressing an imbalance that’s created by our entitlement system. I think that’s worth laying out for a minute: I think of it as a kind of intergenerational bargain that every society makes. The very young and the very old in any society can’t support themselves, and so people in their prime years care for both the youngest and the oldest with the understanding that today’s elderly once did that for them and today’s young will someday do that for them too.

In the past, this bargain happened within families. But most modern societies have socialized a part of that work – while many older people still get help from their families, they also get basic support from Social Security and Medicare that’s all paid for by working people through their taxes. So today’s seniors get benefits funded by today’s workers, and those workers will get benefits tomorrow, funded by tomorrow’s workers. This only socializes half of the bargain – the cost of raising tomorrow’s workers is still born within families. And this means that people who raise children basically pay twice for old-age entitlements, while people who don’t have children benefit from these enormous investments that parents make.

This lays an unfairly large portion of the cost of that intergenerational bargain on parents. The Child Tax Credit is a way to offset that burden – it provides enormously helpful relief to many struggling working families by letting them keep more of what they earn.

TCWF: So, why then have we seen such an increase in interest to expand the EITC for childless workers?

YL: The EITC is not just about helping families. It isn’t part of the intergenerational bargain. It’s an anti-poverty program. The EITC has become increasingly more generous for working families with time, I think for good reasons, but it has become less useful at addressing what is now one of the most chronic and difficult-to-address elements of our poverty problem. Which is, men without children and unmarried men get very little help. Expanding the EITC is a way to encourage them to find work and ensure that that work pays them enough to be able to improve their condition.

YUVAL LEVIN

Evolution of the EITC and CTC

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TCWF: There have been a number of different ideas proposed for how to fund an increased EITC for childless workers – from Paul Ryan’s proposal to end certain welfare programs to President Obama’s proposal to cut tax benefits for the wealthy. Where do you see an opportunity for finding common ground on how to fund the increase?

YL: The Ryan proposal doesn’t pay for the EITC expansion by cutting any of the typical welfare programs for low-income people. It’s paid for by eliminating a few federal programs that I think a lot of people would agree don’t really achieve their goals. He talks about cutting certain elements of what you could call “corporate welfare” – green energy subsidies, a program that helps big corporations market their products abroad, etc. He proposes reducing Child Tax Credit fraud rates to save some money. I think these are all worthwhile changes to make anyway, and it’s an added bonus that Mr. Ryan would use the extra money to expand the EITC.

The key difference between the two proposals is that one pays for the EITC expansion by reducing other tax expenditures and one pays for the expansion by reducing other spending. And that’s a difference, a significant one, but it’s not the biggest difference in the world. I think there are ways of taking elements from each proposal to bridge the gap and find bipartisan consensus. We’re seeing more people interested in the end goal – an EITC expansion – which is rare enough. I think figuring out how to pay for it is definitely doable.

TCWF: Some have recently voiced their support for an increased EITC as an alternative to an increased minimum wage to help low-income workers make ends meet. Others would argue that the two work best as complementary policies and are hesitant to increase one without increasing the other. Do you think it has to be one or the other?

YL: I’m certainly in the first group you described. I think a significant increase in the minimum wage would increase the cost of employment, just when we need it to keep growing. By putting people’s jobs at risk, it would undercut its own purpose.

I think the EITC is a much better way to achieve the same goal because it helps increase the wages of the same workers but it does so without raising the cost of employing them. I don’t see the two as complementary policies. I think they’re fairly contradictory. Putting them together wouldn’t help form a bipartisan consensus. I think there’s growing bipartisan support for an expanded EITC for childless workers but not for an increased minimum wage. So I think they should be kept separate, otherwise we’ll end up with neither one.

August 2014

“Conservatives are committed to an agenda that makes work pay, and that means providing benefits for low-income people that encourage them to work rather than creating incentives to drive them away from the workforce. That’s the core idea behind the EITC – making work pay.”

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Michael Strain, Resident Scholar at the American Enterprise Institute and co-author of Room To Grow, shares his thoughts on expanding the EITC for childless workers.

Tax Credits for Working Families: In Room to Grow, you propose expanding the federal Earned Income Tax Credit (EITC) for childless workers. Why the focus on this particular demographic?

Michael Strain: The EITC is significantly more generous for families with children. In 2014, a childless worker would get less than a $500 credit at most, but a worker with three or more children would get a little over $6,000. That’s a massive gap. I think there are a lot of reasons we should want to provide more help to workers with children. But I think that gap is too big. We also need to increase employment rates among young men, and so many of these childless workers are male. The EITC provides an incentive for them to find work and stay employed. TCWF: How does increasing the EITC help policymakers advance conservative goals? MS: I think you could certainly find some debate about this among conservatives. I personally think of conservativism as championing individual responsibility, as opposed to dependency. Conservativism places a uniquely strong emphasis on working, on earned success and rewarding those who contribute to the broader society through their work. The EITC does exactly that – it provides incentives for people to work, and it provides financial assistance to people who are working to help pay the bills and make ends meet. I think it’s a great policy tool for advancing conservative goals. TCWF: How would you suggest funding an increased EITC for childless workers? MS: I wrote an essay for the National Review where I suggested that we fund it by closing some tax expenditures that primarily benefit the wealthy, like the mortgage interest deduction and the state and local tax deduction. We could redirect some of the money we spend on the richest 20 percent of workers and spend it instead on the poorest 20 percent. Spending money on the poor rather than on the rich aligns well with many conservative principles. TCWF: Rep. Paul Ryan’s poverty plan includes a very similar proposal to expand the EITC for childless workers, only he would fund the increase in part by eliminating certain welfare programs. Do you think your recommendation for funding the increase has a better chance of garnering bipartisan support? MS: What Mr. Ryan is suggesting is also a good idea. A lot of the programs that he suggests eliminating are what I’d call “nickel and dime” programs. They’re not really helping. Using that money to instead expand the EITC is a good idea. My funding proposal and Mr. Ryan’s are just different ways to achieve the same goal.Which do I think has a better shot at passing Congress? I don’t know. There are strong constituencies on either side. TCWF: The Washington Post’s E.J. Dionne recently referred to support for an increased EITC for childless workers as “plain vanilla bipartisanship.” Do you agree with him? Realistically, what do you think the chances are of such a proposal becoming law? MS: If you were to ask all of the Republicans in the House and the Senate, “How many of you fully support expanding the EITC?,” I think you would find that many do not. In that sense, it’s not plain vanilla bipartisanship. On the other hand, Paul Ryan and Marco Rubio, two of the most ambitious, most prominent members of the Republican Party in Congress have both come out in favor of an expanded EITC, or, in Rubio’s case, something similar. That, to me, suggests that this is a bipartisan issue. If they can get their respective chambers on board for an increased credit, they can get it done.

August 2014

MICHAEL STRAIN

Expanding the EITC for Childless Workers

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Utah State Representative Eric Hutchings (R) provided Tax Credits for Working Families with an op-ed in favor of enacting a state Earned Income Tax Credit. The piece originally ran in The Deseret News.

Investing in Workers through the Earned Income Tax Credit

During the 2014 General Session of the Utah Legislature, I introduced legislation designed to address intergenerational poverty among working Utahns by establishing a policy with proven results. The legislation, HB 218 Working Individuals and Families Credit, was designed to provide further assistance to low- and moderate-income workers who are struggling to make ends meet by cutting state taxes and bolstering the impact of the federal EITC.

The Working Individuals and Families Credit was modeled after and linked to the federal EITC. Since 1976, the federal EITC has provided working families with the boost they so badly need when hours are cut and incomes erode.

In 2012, nearly 1 in 5 Utah taxpayers received the federal EITC. The effectiveness of the federal tax credit is well documented. It provides an incentive to work, increases job skills and has kept more than 60,000 Utahns, 33,000 of whom were children, out of poverty. President Ronald Reagan called the EITC a “sweeping victory for fairness” and “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

The Working Individuals and Families Credit is a Utah investment, particularly in the working poor, not through a government handout but with a ladder up to help working families climb their way out of poverty. Among those helped would be our military families, including our returning veterans, who could use the Utah tax credit to supplement their wages as they make their way back into the civilian workforce.

The Working Individuals and Families Credit would provide a Utah tax credit to those taxpayers who receive the federal EITC. Although substantially smaller than the federal EITC, many low-income workers who are only an illness, a layoff or perhaps a car repair away from financial devastation would be aided by even this small bonus.

Not only will the Working Individuals and Families Credit invest directly in workers, but it will invest in their children and our local economies. Today, nearly 1 in 6 Utah children lives in poverty – and nearly half of those children are living in intergenerational poverty. However, outcomes for children living in families receiving the federal EITC, and thereby the state tax credit, experience improved health and academic outcomes and greater lifetime earnings, decreasing the risk of a lifetime of poverty.

The Working Individuals and Families Credit does require an investment by the state, but will generate economic activity in communities throughout our state. By reducing the taxes for these low-income workers, they will have additional resources to meet the basic needs of their families. As is the case with the federal tax credits, the state credits will be largely spent in our small businesses, helping those businesses continue to recover from the Great Recession. The Working Individuals and Families Credit is a win-win for Utah. It is time to make this modest investment in our low-income workers, who continue to play a valuable role in Utah’s re-energized economy.

The Working Individuals and Families Credit passed with a strong bipartisan vote in the House of Representatives 38-25. It received a favorable recommendation from the Senate Revenue and Taxation Committee, but the Session adjourned before the bill was voted on by the Senate. Continuing to support this bill’s path through the legislature and urging enactment will bring much-needed support to thousands of Utahns and their families by helping to ensure that their hard work pays off.

August 2014

ERIC HUTCHINGS

Investing in Workers through the Earned Income Tax Credit

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During a policy discussion at the American Enterprise Institute (AEI) on July 24, 2014, U.S. House Budget Committee Chairman Paul Ryan unveiled a new plan to fight poverty and expand opportunity in America, which included increasing the federal EITC for childless workers and noncustodial parents.

Acknowledging the growing bipartisan endorsement of an EITC increase, Chairman Ryan stated: “I want to throw my support behind a number of ideas that my colleagues in the House and Senate have put forward [...] I’d do that by increasing the Earned Income Tax Credit for childless workers. This is one of the few programs that have shown results. It encourages people to work by increasing the rewards of work. And we all know that the more people we have in the workforce, the more opportunity we’ll have in this country.”

The Chairman’s proposal is almost identical to that of the President – it would roughly double the maximum EITC for childless workers while lowering the eligibility age from 25 to 21. The difference between the two proposals, however; is how they would be paid for. While the President’s plan would be funded through cuts to tax breaks for corporations and higher-income individuals, Chairman Ryan’s plan would eliminate “ineffective programs and corporate welfare” to fund the credit increase.

Full details of the Chairman’s plan are available at http://budget.house.gov/uploadedfiles/expanding_opportunity_in_america.pdf.

July 2014

PAUL RYAN

A Proposal to Increase the EITC

“[...] I’d do that by increasing the Earned Income Tax Credit for childless workers. This is one of the few programs that have shown results. It encourages people to work by increasing the rewards of work.”

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Tax Credits for Working Families interviewed Ron Haskins, former White House and Congressional advisor on welfare issues, current co-director of the Center on Children and Families, Budgeting for National Priorities and senior fellow, economic studies at the Brookings Institution and senior consultant at the Annie E. Casey Foundation.

Tax Credits for Working Families: Why do you think tax credits for working families have recently catapulted to the forefront of many conservative platforms?

Ron Haskins: Republicans have a long history of supporting the EITC. But a number of factors play into this recent surge in support, one of which is the current minimum wage vs. EITC debate. Republicans favor the EITC, especially in the midst of a minimum wage debate because it is much better targeted and arguably imposes less of a burden on the economy.

TCWF: Will this be a contested issue among conservatives?

RH: Definitely. Many conservatives believe the tax code should be used primarily to collect revenue. There are those who share Mitt Romney’s stance on the so-called “47 percenters” and believe tax credits, especially those that are refundable, do quite the opposite. Credit refundability will be a strong point of contention among Republican lawmakers.

The amount of EITC payments made in error is also a likely platform for conservative opponents of the credit. I think it’s wrong to say “fraud,” because I think most EITC overpayments are truly error. But some Republican leaders may turn to this issue as a reason to oppose any increases to the credit. There are not many federal programs with an error rate as high as the EITC.

TCWF: How would improving work incentives like the Child Tax Credit and Earned Income Tax Credit help policymakers advance conservative goals?

RH: Compared to other programs that are intended to help low-income families, these credits have “Republican” written all over them. They embrace conservative ideology by promoting hard work and stable families. These credits are intended to encourage work, can only be collected by those who are currently working and offer support for workers raising children.

In addition, we’ve seen a shift in conservative policy to target support towards the success of younger minority groups, young males in particular. There’s evidence that credits like the EITC encourage these young men to work. The hope is that an expanded EITC for childless workers would also help them continue to be successful throughout their careers and advance to higher-paying jobs. This is a group with potential to become self-sufficient middle-class workers, and that’s where we need to be focusing.

TCWF: So, would you recommend lowering the age requirement to collect the EITC so that more young men are eligible for the credit?

RH: I would. I’d be tempted to even recommend bringing the age requirement down to 19, but the problem with that is then you get students. A kid going to community college because that’s all he can afford, trying to get a technical degree, that’s a kid you want to help. But a middle-class student going to a four-year college, that’s not who we need to focus on. So, lowering the age requirement for the EITC could get tricky.

TCWF: Where do you see areas of opportunity for bipartisan collaboration around some of these proposals?

RH: Of the various issues that are on the table right now, increasing the EITC for childless workers and noncustodial parents has a decent chance of garnering bipartisan support. The President has proposed an increased credit for these workers and Paul Ryan, Marco Rubio and Mike Lee have all expressed their support for an EITC reform that helps this group.

July 2014

RON HASKINS

Lowering the Age Requirement for the EITC

For questions or comments on this report, or to order printed copies, please contact Lauren Pescatore at (301) 656-0348 or at lpescatore@thehatchergroup.com.

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