More About Chye-Ching Huang

Chye-Ching Huang

Chye-Ching Huang is a tax policy analyst with the Center’s Federal Fiscal Policy Team, where she focuses on the fiscal and economic effects of federal tax policy. You can follow her on Twitter @dashching.

Full bio and recent public appearances | Research archive at CBPP.org


The EITC’s Far-Reaching Benefits

September 4, 2014 at 12:17 pm

The Earned Income Tax Credit (EITC) “may ultimately be judged one of the most successful labor market innovations in U.S. history,” says the University of California’s Hilary Hoynes in a new article, explaining that the EITC not only encourages work and reduces poverty but produces gains that extend into the next generation:

The effects of EITC extend well beyond simple income support and poverty reduction.  By increasing the income of poor families, it generates additional spending and hence “downstream” economic effects.  It leads to various improvements in the mental and physical health of mothers.  It brings about a reduction in low birth weight among infants. And it improves the performance of children on cognitive tests.  This burgeoning body of work suggests, then, that income support programs have benefits that extend well beyond an increase in cash flow for families in poverty.

We’ve highlighted findings by Hoynes, a leading researcher, and others on the benefits of the EITC and related income support, including a study suggesting that more adequate income during early childhood can lead to greater work effort later in life (see chart).

Policymakers can build on this proven success by expanding the tiny EITC for childless workers, as both President Obama and House Budget Committee Chairman Paul Ryan favor, and by making permanent key EITC and Child Tax Credit improvements set to expire in 2018.

Kleinbard: “Competitiveness” Argument for Moving Firms’ Headquarters Overseas Is a Canard

August 12, 2014 at 10:10 am

The claim that many U.S. companies are moving their headquarters overseas because U.S. corporate tax rates make them uncompetitive is “largely fact-free,” USC law professor and former Joint Tax Committee staff director Edward Kleinbard concludes in a new paper.

While many firms and their lobbyists highlight the 35 percent top U.S. corporate rate, that’s not what companies actually pay, Kleinbard explains.  The effective tax rate that U.S. multinationals face on their worldwide income — that is, the share of this income that they pay in taxes — is well below this statutory rate.  A big reason is that multinationals report vast amounts of their income as coming from tax havens where they pay little or no tax, even if they have few staff and do little business there.

Kleinbard also explains that the 2004 repatriation tax holiday, which allowed multinationals to bring profits held overseas back to the United States at a temporary, vastly reduced tax rate, gave them a big incentive to stockpile billions more in tax havens and await another tax holiday.  These large stashes of profits in tax havens are an important reason — Kleinbard thinks the key reason — why many companies are considering moving their headquarters overseas.  By “inverting,” these companies can basically declare their own, permanent tax holiday and avoid ever paying U.S. taxes on foreign-held profits.  And once inverted, they can use legal avoidance schemes to effectively get those profits to their U.S. shareholders.

In other words, multinationals are already using tax havens to achieve zero or extremely low tax rates.  Firms considering inversions are searching not for a “competitive” tax rate but a zero tax rate by ensuring that those profits remain “stateless” — that is, taxed nowhere at all. (Echoing a famous line from Mae West, Kleinbard’s paper is titled “‘Competitiveness’ Has Nothing to Do With It.”)

Kleinbard’s solution has three parts:

  1. Make it harder for a U.S. multinational to invert.
  2. Prevent companies that do invert from effectively distributing their “foreign profits” to U.S. shareholders without paying U.S. tax.
  3. Make it harder for all U.S. multinationals to claim that U.S.-earned profits were actually earned in tax havens and low-tax countries.

IMF and OECD Call for Stronger EITC and Minimum Wage

July 30, 2014 at 11:42 am

The Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF), which have previously recommended expanding the Earned Income Tax Credit (EITC) and raising the federal minimum wage, both issued recent reports underscoring that these measures should be viewed as complements, not competing alternatives.

The reminder that a higher minimum wage can make a stronger EITC more effective at reducing poverty and encouraging work is especially timely given House Budget Committee Chairman Paul Ryan’s new poverty plan.  Ryan commendably recommended expanding the EITC for childless workers and non-custodial parents, but presented this as an alternative to a minimum wage increase.

The IMF report recommends:

An expansion of the EITC (including making permanent the various extensions that are due to expire in 2017) would also raise living standards for the very poor.  Finally, given its current low level, the minimum wage should be increased.  This would help raise incomes for millions of working poor and would have strong complementarities with the suggested improvements in the EITC, working in tandem to ensure a meaningful increase in after-tax earnings for the nation’s poorest households.

The OECD working paper reiterates the OECD’s previous finding that “the EITC is a large and successful antipoverty program” and recommends strengthening the EITC for childless workers and non-custodial adults, along with raising the minimum wage.  Because the EITC is a proven work incentive, it expands the number of people seeking jobs in the low-wage sector, which can put some downward pressure on the wages that employers offer potential workers — meaning that some EITC dollars would effectively flow to employers, not workers.  A higher minimum wage helps offset that effect.  As the OECD explains:

Setting the federal minimum wage at a reasonable level can also help to make the EITC more effective at raising incomes. Although hard to quantify, employers could be capturing part of the credit by paying lower wages than they would in the absence of the EITC (OECD, 2009). Increasing the federal minimum wage would counteract this dead-weight loss by supporting wage levels.

For policymakers of either party striving to expand opportunity and raise the living standards of working-poor families, the policy roadmap is clear:  extend the recent improvements in the EITC and Child Tax Credit, expand the EITC for childless workers, and raise the minimum wage.

What Difference Would Ryan’s EITC Expansion Make for Childless Workers?

July 29, 2014 at 4:07 pm

We’ve explained that House Budget Committee Chairman Paul Ryan’s proposed expansion of the Earned Income Tax Credit (EITC) for childless adults, including non-custodial parents, would encourage work and reduce poverty.  This interactive chart allows you to compare the EITC that childless workers at different income levels would earn under current law and under the Ryan expansion, which mirrors a proposal from President Obama.

For example, the EITC for single childless worker making poverty-level wages (we estimate $12,566 in 2015) would jump from about $170 under current law to about $840 in 2015 under the Ryan and Obama proposals.

The Ryan and Obama plans would, starting in 2015: lower the EITC’s eligibility age for workers not raising minor children from 25 to 21, double the maximum credit to about $1,000, and phase in the credit more quickly as a worker’s income rises.  (Unlike Chairman Ryan, President Obama would also allow workers aged 65 and 66 to claim the credit.)

The big difference between the Ryan and Obama plans, as we’ve noted, is the proposed “offsets” to pay for them (not reflected in the interactive above).  Several of Ryan’s offsets would hit low-income and other vulnerable families, while the President would pay for his EITC expansion by closing tax loopholes for wealthy taxpayers.

Nevertheless, it’s encouraging that leading members of both parties recognize the need to do more for the lone group that the federal tax system taxes into poverty.

Plug the Inversion Loophole Now

July 22, 2014 at 2:53 pm

The New York Times’ latest “Room for Debate” feature asks how the United States can stop corporations from moving their headquarters overseas — known as corporate “inversions” — to avoid taxes.  In my contribution, I explain that inversions are a high-profile part of the problem that multinationals’ profits aren’t taxed anywhere, because tax rules let companies claim they earned the profits in in zero- or low-tax havens.

I point out that Pfizer — whose inversion plans made recent headlines — could keep billions in profits permanently untaxed by inverting.  Ed Kleinbard, USC law professor and former staff director for Congress’ Joint Committee on Taxation, explains in detail in a new Wall Street Journal piece how companies can lower their tax bills through an inversion.

In the Times, I recommend swift, targeted anti-inversion legislation:

Slashing U.S. corporate taxes won’t solve an inversions problem created by profits that already aren’t taxed. Instead, U.S. policymakers should first swiftly enact targeted anti-inversion legislation to protect the U.S. tax base.

That’s why Senate Finance Committee Chair Ron Wyden should be applauded for his pledge today (during a Senate Finance Committee hearing on inversions and international tax reform) to immediately try to stop U.S. firms from incorporating overseas for tax purposes.  “Let’s work together to immediately cool down the inversion fever … The inversion loophole needs to be plugged now,” Wyden said.

Then, any eventual corporate tax reform could raise revenue by eliminating inefficient business tax breaks for both domestic and foreign profits and reducing opportunities and incentives for corporations to engage in international tax avoidance, and level the playing field between domestic and multinational companies, as we’ve previously explained.

Click here to read the full “Room for Debate” piece.