Date post: | 02-Jan-2016 |
Category: |
Documents |
Upload: | carol-rodgers |
View: | 217 times |
Download: | 2 times |
Using Refundable Tax Credits to Help Low-
income TaxpayersTax Expenditures and Public Policy in
Comparative Perspective Osgoode Hall Law School
Toronto, Canada
by Jon FormanAlfred P. Murrah Professor of Law
University of Oklahoma
Income Inequality
Gini
coefficientInterdecile ratio
P90/P10Interdecile ratio
P50/P10Level Rank Level Rank Level Rank
Australia 0.30 16 3.95 15 2.09 18Canada 0.32 18 4.12 17 2.14 20Mexico 0.47 30 8.53 30 2.86 30Sweden 0.23 2 2.79 2 1.72 1United Kingdom 0.34 23 4.21 18 1.99 15United States 0.38 27 5.91 27 2.69 29OECD-30 0.31 .. 4.16 2.09 ..
2http://dx.doi.org/10.1787/420888675468
Income Inequality, cont.Interquintile share ratio
(S80/S20)Interdecile ratio
(P90/P10)Australia 4.8 4.0Canada 5.2 4.1Mexico 12.1 8.5Sweden 3.3 2.8United Kingdom 5.4 4.2United States 7.9 5.9OECD-30 5.3 4.1
3http://dx.doi.org/10.1787/421061637532
Inequality and Redistribution
CountryGini
Before Gini
After
Poverty Before
(50% of median
income)
Poverty After
(50% of median
income)
Tax %GD
P
Social Spending
%GDP
Australia 0.46 0.3 28.6 12.4 30.6 17.1
Canada 0.44 0.32 23.1 12.0 33.3 16.5
Mexico n/a 0.47 21.0 18.4 20.6 7.0
Sweden 0.43 0.23 26.7 5.3 49.1 29.4
United Kingdom 0.46 0.34 26.3 8.3 37.1 21.3
United States 0.46 0.38 26.3 17.1 28.0 15.9
OECD 0.45 0.31 26.4 10.6 35.9 20.5
4
Redistribution through Cash Transfers & Taxes
Transfers to lowest quintile
Taxes from lowest quintile
Net transfers to lowest quintile
Australia 5.9 0.2 5.8Canada 3.5 0.6 2.9Korea 0.9 0.5 0.4Sweden 8.5 2.8 5.7United Kingdom 4.6 0.4 4.1United States 2.3 0.4 1.9OECD-23 5.4 1.2 4.2
7http://dx.doi.org/10.1787/422058728151
Tax-to-GDP Ratios, 2006
CountryIncome Taxes
Payroll taxes
Consumption Taxes
Total Taxes
Australia 18.1 - 8.3 30.6
Canada 16.2 4.9 8.1 33.3
United Kingdom 14.7 6.9 10.8 37.1
United States 13.5 6.7 4.7 28.0
OECD Total 13.0 9.1 11.1 35.9
8
U.S. Standard Deductions, Personal Exemptions, and Simple Income Tax Thresholds, 2009
Unmarried individuals
Heads of household with one
child
Married couples filing joint returns
with two children
Standard deduction
$5,700 $ 8,350 $11,400
Personal exemptions
$3,650 $ 7,300 $14,600
Simple income tax threshold
$9,350 $15,650 $26,000
9
Tax Rate Schedules for Various Taxpayers, 2009
10
Tax rate Rate bracket
Unmarried individualsHeads of household
with one child
Married couples filing joint returns with two
children10 $0 to $8,350 $0 to $11,950 $0 to $16,70015 $8,350 to $33,950 $11,950 to $45,500 $16,700 to $67,90025 $33,950 to $82,250 $45,500 to $117,450 $67,900 to $137,05028 $82,250 to $171,550 $117,450 to $190,200 $137,050 to $208,85033 $171,550 to $372,950 $190,200 to $372,950 $208,850 to $372,95035 Over $372,950 Over $372,950 Over $372,950
“Making Work Pay” Credit
New refundable credit I.R.C. § 36A (ARRA §1001) Will cut taxes for working families Up to $400 ($800 if MFJ)
Computed as 6.2 percent of earned income up to $400 ($800 if MFJ)
Phase out for taxpayers with modified AGI > $75,000 ($150,000 MFJ)
Claim credit on 2009 tax return Tax withholding decrease
11
Earned Income Tax Credit (EITC) Increase
New credit percentage for 3 or more qualifying children I.R.C. § 32 (ARRA § 2002) Temporary increase 2009 & 2010 Computed as 45% of earnings (up from
40%) Maximum credit increase = $5,028 to
$5,657 Maximum AGI increase = $43,415 to
$48,279
12
Child Tax Credit
$1,000 per qualifying child I.R.C. § 24 (ARRA § 1003)
Temporary expansion of eligibility for refundable credit
More lower income families qualify: 2008 – threshold amount was = $8,500 2009 – threshold amount = $3,000 2010 – threshold amount = $3,000
13
Poverty Levels & Net Federal Tax Thresholds, 2009
Unmarried individual
Single parent with 1 child
Married couple with 2
children
Married couple with 3
children1. Poverty levels $10,830 $14,570 $22,050 $25,7902. Simple income tax threshold (before credits)
$9,350 $15,650 $26,000 $29,650
3. Income tax threshold after credits
$13,391 $32,317 $50,233 $60,550
4. Employee payroll tax threshold
$0 $0 $0 $0
5. Combined income and payroll tax threshold
$9,336 $25,667 $38,592 $43,743
14
Taxes at Poverty Level, 2009
15
Unmarried individual
Single parent with 1 child
Married couple with 2
children
Married couple with 3
children1. Poverty levels $10,830 $14,570 $22,050 $25,7902. Income tax at poverty level (after credits)
-$452 -$4,443 -$7,695 -$8,537
3. Employee Social Security & Medicare tax at poverty level
$829 $1,115 $1,687 $1,973
4. Combined income and payroll tax at poverty level
$377 -$3,328 -$6,008 -$6,564
5. Combined tax as a percent of income at poverty level
3.5% -22.8% -27.2% -25.5%
Outlays for the Principal Federal Benefit Programs in the United States (billions of dollars)
2008 actual 2014 estimateSocial Security $612 $838Medicare 385 630Medicaid 201 326Unemployment compensation 43 48Supplemental Security Income 38 49Earned income tax credit 41 43Child tax credit 34 24Making work pay tax credit n/a 20Food assistance 54 79Family support 25 24Housing assistance <1 8Retirement and disability programs for civilians, military and veterans
155 21717
U.S.: Share of Household Income & Gini Index, 2005
Market income Disposable income
Quintiles
Lowest 1.50 4.42
Second 7.26 9.86
Middle 14.00 15.33
Fourth 23.41 23.11
Highest 53.83 47.28
Gini Index 0.493 0.418
18
Canada
Canada Child Tax Benefit (CCTB) C$111.66 for each child under age 18
National Child Benefit Supp. (NCBS) Up to C$173.00 per month
Child Disability Benefit (CDB) Up to C$204.58 per month
Universal Child Care Benefit (UCCB) C$1,200 per year for children under 6
19
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$248 for taxpayer, spouse or partner C$130 for each child
20
United Kingdom
Child Benefit £20/week oldest child; £13.20 others
Child Tax Credit £545 per year/family+ £2,235/child
Working Tax Credit £1,890 per year per worker + 80% × child care, up to £175/week for
1 child; £300/week for 2+ children
21
Australia
Family Tax Benefit Part A: up to A$4,803.40 child under 13;
A$6033.45 child 13-15; etc. Part B: extra help for low-income single
parents & families with one main income
Child Care Tax Rebate Baby Bonus
$5,185, paid in 13 fortnightly installments
22
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)
Pre-transfer earnings
Plus personal tax
credits
Plus worker credit
Less tax imposed
After-tax income
0 $6,000 0 0 $6,000 $10,000 $6,000 $2,000 $2,000 $16,000 $20,000 $6,000 $2,000 $4,000 $24,000 $50,000 $6,000 $2,000 $10,000 $48,000 $100,000 $6,000 $2,000 $27,500 $80,500 $200,000 $6,000 $2,000 $62,500 $145,500
24
About the Author Jonathan Barry Forman (“Jon”) is
the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law, teaching tax and pension law;
the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year; and
the author of Making America Work (Washington, DC: Urban Institute Press, 2006).
Prior to entering academia, Professor Forman served in all three branches of the federal government. He has a law degree from the University of Michigan and master’s degrees in both economics and psychology.
Jon can be reached at [email protected], 405-325-4779 These slides at www.law.ou.edu/faculty/forman.shtml
26