More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

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


House Republicans’ Wrong-Headed Approach to Tax Extenders

September 17, 2014 at 1:00 pm

House Republicans are putting before the House this week a campaign-oriented bill of wide-ranging measures that have previously passed the House, including repealing portions of the Affordable Care Act and scaling back Dodd-Frank regulations.  The bill, which won’t advance beyond the House due to obvious Senate and White House opposition, also includes business tax provisions that lawmakers will likely consider again during Congress’ post-election lame duck session this fall.  For that reason alone, the legislation warrants some attention.

The House bill would make permanent certain “tax extenders” — so named because Congress routinely extends them for a year or two at a time — as well as bonus depreciation, which lets businesses take larger upfront tax deductions for certain purchases, such as machinery and equipment, and that historically has been a temporary measure to help revive a weak economy.  Congress should reject the House approach to these provisions because it is not fiscally responsible, is poorly designed from an economic standpoint, and is antithetical to tax reform.  Moreover, it reflects seriously misplaced priorities, putting the permanent extension of these business provisions ahead of more pressing provisions for hard-working families.

  • Its $500 billion price tag is fiscally irresponsible.  Policymakers have enacted significant deficit-reduction measures since 2010, with the vast majority coming from spending cuts.  The one revenue contribution stems from the 2012 “fiscal cliff” bill — i.e., the American Taxpayer Relief Act — that raised $770 billion in revenue from high-income taxpayers (from 2015 to 2024).  The tax extenders and bonus depreciation provisions in the House bill would reduce revenue by $500 billion over the decade, effectively giving back two-thirds of the revenue contribution to deficit reduction (see chart).  (The total cost of the House bill is about $575 billion, because of other revenue-losing provisions.)

  • It’s poorly designed from an economic standpoint because it makes bonus depreciation permanent.  Making bonus depreciation permanent accounts for more than half of the $500 billion cost of the business tax provisions.  But bonus depreciation was specifically designed not to be permanent because its temporary nature is what drives its (albeit limited) effectiveness during recessions.  Its modest economic boost comes entirely from inducing firms to accelerate some of their purchases into the period when the tax break is in effect and the economy is weak.  Making it permanent would negate this modest incentive effect.  That’s why the Bush Administration and Congress allowed it to expire after the 2001 recession ended and why this Congress should let it expire now.
  • It moves away from tax reform.  The fundamental nature of tax reform is to “broaden the base” by scaling back tax subsidies and to use the freed-up funds to lower tax rates, reduce budget deficits, or both.  For example, House Ways and Means Chairman Dave Camp (R-MI) earlier this year advanced a comprehensive plan that eliminated tax subsidies for certain business investments, including the repeal of bonus depreciation.  These changes were central to his base-broadening provisions.  But the package that House Republicans are now bringing before the House goes in the opposite direction.  Its provision to make bonus depreciation permanent narrows the tax base and, thereby, moves away from tax reform.

If, during the lame duck session, policymakers consider making any tax extenders permanent, they should focus first on making permanent important provisions of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) that are due to expire at the end of 2017.  Failure to make the EITC and CTC provisions permanent would have a significant impact on low- and moderate-income families, pushing 17 million people (including 8 million children) into — or deeper into — poverty.

IRS Commissioner Confirms House-Passed Cuts to IRS Budget Could Be “Catastrophic”

August 25, 2014 at 3:48 pm

IRS Commissioner John Koskinen said, according to Tax Notes, that the effects of House-passed IRS budget cuts would be “very serious if not catastrophic” to the agency’s ability to collect revenue and provide taxpayer services, adding: “I no longer want people to think that if we get less money it doesn’t make any difference.  It makes a big difference on taxpayers, on tax preparers, on tax compliance, on tax enforcement.”

As we have written, the House bill would cut IRS funding by $1.5 billion in 2015, including a $1.2 billion reduction in the agency’s enforcement budget, relative to 2014 funding.  The enforcement budget is crucial to the IRS’ ability to collect revenue and pursue tax cheats.  As Commissioner Koskinen affirms, reducing the IRS enforcement budget actually increases the deficit because it prevents the agency from thwarting tax fraud, evasion, and other illegal behavior, thus reducing federal revenue:

Congress is starving our revenue-generating operation. If voluntary compliance with the tax code drops by 1 percent, it costs the U.S. government $30 billion per year.  The IRS annual budget is only $11 billion per year.

And the House cuts would come on top of years of IRS budget cuts that have already weakened enforcement and harmed taxpayer services.  Funding for the IRS fell by 14 percent (after accounting for inflation) between 2010 and 2014 (see chart).  These cuts forced the agency to reduce its workforce by over 10,000 employees and have led directly to a significant decline in the quality of taxpayer services.

For example, millions of taxpayers depend on IRS assistance over the telephone, yet in 2013, a typical caller to the IRS waited on hold for about 18 minutes for an IRS representative, and about 40 percent of calls were never answered.  This is a sharp decline from 2010, when the IRS answered three-quarters of calls and had an average wait time of just under 11 minutes.

Commissioner Koskinen was frank about the impact of continued cuts:

You cannot continue to reduce our resources and ask us to do more things.  The blind belief in Congress that they can continue to cut funding and we will just become more efficient is not the case.  We are becoming more efficient but there is a limit.  Eventually the effects will show up.  We are no longer going to pretend that cutting funding makes no difference.

Policymakers must give the IRS the resources it needs to fulfill its tax-collecting mission and provide the services taxpayers depend on.  The first step is for the Senate and the President to reject the reckless House cuts.

Reagan’s Actions Made Him a True EITC Champion

August 1, 2014 at 11:03 am

We’ve noted that the Earned Income Tax Credit (EITC), which reduces poverty while encouraging and rewarding work, has enjoyed broad support over the years.  One of its champions was President Reagan, who proposed and then signed a major expansion of it in the 1986 Tax Reform Act.

While Reagan is often quoted as calling the EITC “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” he was, as Tax Policy Center director Len Burman blogged this week, actually referring to the 1986 tax reform as a whole, not just its EITC component.  But that takes nothing away from Reagan’s role in strengthening the EITC.

Burman correctly notes that “Republican icon Ronald Reagan supported the Tax Reform Act of 1986’s expansion of the EITC.”   Indeed, Reagan did more than support the EITC increase; he proposed it.

The tax proposals that President Reagan submitted to Congress in 1985 included a proposal to phase in the credit more quickly as a worker’s income rises, expand the maximum EITC, phase the credit out more slowly so that more families would be eligible, and index these parameters for inflation.  The final legislation included the Reagan-proposed phase-in (14 percent) and phase-out (10 percent) rates, as well as his proposed indexation.  Congress went even further on its increase in the maximum credit.

There’s no question that Ronald Reagan’s actions secured his place as a strong advocate of the EITC.

House GOP Follows Ryan Anti-Poverty Plan With Pro-Poverty Legislation

July 25, 2014 at 11:12 am

House Budget Committee Chairman Paul Ryan (R-WI) extolled the anti-poverty effects of the Earned Income Tax Credit (EITC) and, in his new poverty proposal, wisely proposed expanding it for childless adults (including non-custodial parents).  The praise that Chairman Ryan correctly gave the EITC also applies to the refundable portion of the Child Tax Credit (CTC).  Both of these essential tax credits encourage work, expand opportunity, and reduce poverty.

Today, however, House Republicans are considering on the House floor permanent CTC legislation — a bill for which Rep. Ryan voted as a Ways and Means Committee member — that would lead to more poverty, not less.  The bill permanently alters the CTC by extending it higher up the income scale so that more families with six-figure incomes can benefit from it, while failing to make permanent a key CTC improvement from 2009 for working-poor and near-poor families that’s slated to expire at the end of 2017.  Census data show that letting the CTC improvement for low-income working families expire after 2017 would push 12 million people — including 6 million children — into or deeper into poverty (see chart).

As we have explained, the House bill raises the income levels at which the CTC begins to phase out and indexes those thresholds to inflation.  Couples with two children making between $150,000 and $205,000 would become newly eligible for the credit; a family making $160,000, for example, would receive a new tax cut of $2,200 in 2018.  But because the bill fails to make permanent the 2009 reduction in the CTC’s earnings threshold after 2017, a single mother with two children who works full time throughout the year at the minimum wage and earns $14,500 would lose her entire CTC of $1,725 in 2018.

The bill also indexes the current maximum credit of $1,000 per child to inflation, but that would not help most working families with low or moderate incomes because it benefits only those with incomes high enough to receive the maximum credit.  If the credit’s $3,000 earnings threshold (the level of family earnings at which the credit starts to phase in) is allowed to expire at the end of 2017, the threshold will nearly quintuple — and families making less than about $14,500 will lose their CTC altogether.  In addition, many working families with incomes somewhat above $14,500 will have their CTC cut substantially and no longer receive the maximum credit, making the inflation adjustment meaningless for them.  Under the House bill, indexing would not benefit a family with two children in 2018 until the family has earnings of at least $28,050 — nearly double full-time work at the minimum wage.

Chairman Ryan’s colleagues should consider the poverty-fighting effects of tax credits such as the CTC for low-income working families.  Then they should reverse course and put these families’ needs first, rather than last.

Ryan Adds Momentum to Expanding EITC for Childless Workers

July 24, 2014 at 4:56 pm

House Budget Committee Chairman Paul Ryan highlighted the Earned Income Tax Credit (EITC) today as one of the most effective anti-poverty programs and joined growing bipartisan calls to expand it for childless adults (including non-custodial parents), the lone group that the federal tax system taxes into poverty.  We applaud this step, though we encourage him to reconsider some of his proposals to offset the cost — which would hit vulnerable families — and his opposition to a much-needed increase in the minimum wage.

Ryan proposes lowering the eligibility age for the EITC for workers not raising minor children from 25 to 21, doubling the maximum credit to about $1,000, and phasing in the credit more quickly as a worker’s income rises.

Ryan’s poverty proposal makes a strong, and broadly shared, case for these changes:

  • It notes that young adults’ labor force participation has dropped precipitously in recent years and their unemployment rate is very high.  “[T]he sooner young adults join the workforce, the more experience they will gain and the stronger their attachment will be,” it points out.
  • It cites the findings by the University of Wisconsin’s John Karl Scholz, one of the country’s top EITC experts, that strengthening the EITC for childless workers could lower unemployment, promote marriage, and reduce incarceration rates.  (See our report for more on these issues.) 

President Obama has proposed a very similar EITC expansion, and Senator Marco Rubio (R-FL) has highlighted the need to increase wage subsidies for childless workers.  Congressional Democrats have also championed substantial improvements to the EITC for childless workers.

Unfortunately, Ryan’s proposal has two serious flaws.

First, he would pay for it in part by eliminating the refundable part of the Child Tax Credit for several million children in low-income immigrant working families, including citizen children and “Dreamers,” thereby pushing many of them into — or deeper into — poverty. He would also eliminate the Social Services Block Grant, a flexible funding source that helps states meet the specialized needs of their most vulnerable populations, primarily low- and moderate-income children and people who are elderly or disabled.  (This program provides the kind of services and state flexibility that Ryan says we need more of when he promotes other parts of his plan that would enable states to cut food stamps and rental assistance and shift the resources to services.)

Also among the programs that Ryan would end is one that provides fresh fruits and vegetables primarily to children in schools in low-income areas.  By contrast, the President would pay for his EITC expansion by closing tax loopholes for wealthy taxpayers.

Second, Ryan presents the proposal as an alternative to raising the minimum wage, which has lost 22 percent of its value since the late 1960s due to inflation.  As we have explained, it takes both a strong EITC and an adequate minimum wage to ensure that work “pays” adequately for those in low-wage jobs.  The two policies should be seen as complements, not substitutes.

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