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


“Tax Extenders” Package Even Worse Than First Appeared

December 1, 2014 at 3:34 pm

12-1-14taxWe’ve explained that the package that emerged last week to permanently extend several temporary tax breaks (“tax extenders”) and enlarge some of them would raise deficits — thereby putting more pressure on domestic programs for cost-saving cuts — while favoring large corporations and leaving out millions of working families. Following a presidential veto threat, the package now appears dead; but as lawmakers continue to consider options for what to do about the extenders, they should recognize another serious flaw in that package: nearly a quarter of its roughly $400 billion cost would have come from expanding tax cuts for businesses, not just extending them (see chart).

In particular, the package doubled the tax credit for research and experimentation, raising its ten-year cost from $75 billion to $151 billion. Making this and other extenders permanent without paying for them would be fiscally irresponsible; expanding some of them while doing so would be even more egregious.

Our report detailed the package’s main flaws:

  • It would have given back more than half of the revenue raised by the 2012 “fiscal cliff” legislation. If it had become law, more than 85 percent of the deficit reduction achieved since 2010 would have come from budget cuts rather than new revenues.
  • Congressional Republicans insist that future congressional budget plans balance the budget in ten years with no new revenues, cuts in Social Security benefits for current retirees, or defense cuts. Such a plan would already demand deep cuts in important areas; the extenders package would require even deeper cuts. As incoming House Budget Committee Chairman Tom Price (R-GA) said recently, “anything that’s made permanent now makes it more difficult to get to [budget] balance.”
  • While permanently extending and expanding tax benefits mostly for businesses, the package failed to extend temporary tax provisions for low-income working families with children. Those provisions — in the Earned Income Tax Credit and the low-income piece of the Child Tax Credit — lift more than 16 million people out of poverty or closer to the poverty line each year, including nearly 8 million children. Their omission would make it less likely they will continue beyond 2017, when they are slated to expire.
  • If policymakers make a number of extenders permanent now, without paying for them, they won’t have to offset the cost of making them permanent as part of tax reform. That would enable them to produce a tax reform bill that cuts the top tax rate more deeply, curbs fewer special-interest tax breaks, or both — and yet still is labeled “revenue neutral.”

Transition Tax to Pay for Infrastructure Isn’t a Repatriation Tax Holiday

November 13, 2014 at 1:52 pm

As policymakers mull corporate tax reform, it’s important to distinguish between two proposals that are often confused:   a repatriation tax holiday and funding infrastructure through broader corporate tax reform, such as through a transition tax on offshore profits.

A repatriation tax holiday encourages U.S. multinationals to return overseas profits to the United States by offering them a temporary, much lower U.S. tax rate on those profits.  It’s voluntary, saves money for companies, and increases deficits.

Lawmakers tried this in 2004 and it was a complete policy failure:  contrary to their promises, companies generally didn’t use the repatriated funds for more U.S. investment and job creation.  Many of the companies that lobbied most aggressively for the holiday actually announced major layoffs around the same time.

The Administration and many in Congress therefore oppose another holiday.  As an Administration spokesperson said several months ago: “The President does not support and has never supported a voluntary repatriation holiday because it would give large tax breaks to a very small number of companies that have most aggressively shifted profits, and in many cases, jobs, overseas.”

In the context of tax reform, however, one key question is what to do with multinationals’ existing foreign-held profits that have yet to be taxed in the United States.  House Ways and Means Chairman Dave Camp has proposed a mandatory transition tax on those existing profits as part of moving to a new tax regime.  The transition tax itself could raise revenues.  The concept is sound, and a transition tax would be good policy if designed carefully — in fact, a robust transition tax should be part of any responsible international tax reform.

Because the revenues from a transition tax would be one-time in nature, it would make sense to dedicate them to a burst of infrastructure investments.  This would address a glaring economic need and spur needed job creation.  It would also be more fiscally responsible than using them to pretend to “pay for” a permanent cut in the corporate tax rate — a gimmick that would increase long-run deficits.

Indeed, the President has proposed dedicating any one-time revenues generated by tax reform to infrastructure investments, not permanent corporate rate cuts.  The President alluded to that idea last week when he talked about paying for infrastructure with tax reform.  One source of temporary revenues in tax reform could be a mandatory transition tax on offshore profits.

The repatriation tax holiday is a failed idea that we should not repeat.  A transition tax to finance infrastructure as part of corporate tax reform, however, merits serious consideration.  Our paper has more on the problems with repatriation tax holidays and how a transition tax should be designed.

What Would Congress’s Inaction Cost Working Families? Find Out.

October 8, 2014 at 2:05 pm

Unless Congress acts, key Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) provisions will expire at the end of 2017, pushing 17 million people — including 8 million children — into or deeper into poverty.  As we’ve noted here and here, making these provisions permanent should be a key priority for Congress.

Our new interactive calculator, below, allows you to explore what’s at stake for low- and moderate-income families if three important provisions expire at the end of 2017:

CTC refundability threshold

Current provision:  The CTC is worth up to $1,000 per child, and families have to work to qualify for it.  A family needs to earn at least $3,000 before beginning to earn the portion of the CTC that can be received as a tax refund.  The refundable CTC gradually phases in as earnings rise above that level. A family with two children cannot qualify for the full CTC unless their earnings reach $16,330.

In 2018, without action:  The $3,000 earnings threshold will more than quadruple to $14,700, so families with earnings between $3,000 and $14,700 will lose their entire CTC.  As the interactive below shows, a single mother who works full time at the minimum wage (earning $14,500) would see her CTC fall by $1,725, to $0 — a real hit to her ability to afford the basics.  To qualify for the full CTC, a married couple with two children will need earnings of at least $28,030, so many families that will still qualify will see their credits cut substantially.  About 3.7 million families, including 5.8 million children, will lose their entire CTC, and an additional 5.2 million families, including 10.6 million children, will lose part of their CTC, Citizens for Tax Justice (CTJ) estimates.

EITC marriage penalty relief

Current provision:  The EITC now begins to phase down at an income level that’s $5,000 higher for married couples than for single filers.

In 2018, without action:  The EITC for married couples will begin to phase out only $3,000 above single filers’ phase-out level, cutting the EITC for many low-income married filers and increasing the EITC’s marriage penalty for two-earner families.

EITC boost for larger families

Current provision:  Families with three or more children can qualify for a maximum EITC that’s about $650 larger than for families with two children.

In 2018, without action:  The maximum EITC for families with three or more children will be cut to the same maximum EITC as families with two children.

With the loss of these two key EITC provisions, 6.5 million families, including 15.9 million children, would lose some or all of their EITC, CTJ estimates.

This calculator does not show the impact of the American Opportunity Tax Credit, a credit to defray the costs of college, which is also set to expire at the end of 2017 under current law.  Its expiration would mean the loss of tax credits for college for about 11 million families with students.

Considering Tax Reform? Here’s a Must-Read

October 2, 2014 at 1:49 pm

With leading members of both parties placing tax reform high on the agenda for next year, a  new paper by William B. Gale, Co-Director of the Urban-Brookings Tax Policy Center (TPC), and Andrew Samwick, a Dartmouth College professor and former Chief Economist for President George W. Bush’s Council of Economic Advisers, is a must read.  They review the evidence about how income taxes affect economic growth and explain:

The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel.  However, theory, evidence, and simulation studies tell a different and more complicated story.

Gale and Samwick highlight some often-overlooked factors about how tax changes affect growth, including:

Tax changes affect the budget.  As Gale and Samwick note, research shows that large, unfinanced tax cuts can hurt growth because the increase in deficits creates a drag on national savings and investment that outweighs any positive incentive effects.  Conversely, in the face of increasing long-run deficits, revenue increases could boost growth.

Scaling back inefficient tax subsidies can promote growth.  Howard Gleckman, a TPC fellow and moderator of a discussion at the TPC event releasing Gale and Samwick’s paper in which I participated, noted that our panel:

[G]enerally agreed that the real benefit [of tax reform] likely comes from scaling back or even eliminating inefficient tax preferences, rather than reducing rates. Those changes make it more likely that people will allocate resources to maximize their economic benefit, rather than to maximize their tax savings.  If that shift is big enough, it could increase the overall size of the economy.

We could use the revenues generated by such base broadening to reduce long-run deficits, which would boost growth over the long run. (As we repeatedly emphasize, however, getting the economy back to full employment should be a greater priority than deficit reduction.)

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.