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


Increase the EITC to Help Lift “Childless Workers” Out of Poverty

April 15, 2014 at 3:21 pm

It’s time for policymakers to fix a glaring hole in the Earned Income Tax Credit (EITC), as I explain today in an op-ed for National Journal:

While the tax credit reduces poverty among families with children by double-digit percentages, as a recent Congressional Research Service report found, it does little or nothing to help low-wage workers who aren’t raising minor children. A “childless adult” working full time at the minimum wage — an annual income of just $14,500 — earns too much to receive the credit.

As a partial result of the now-limited EITC, childless workers are the sole group of workers that the federal tax system pushes into — or in many cases, deeper into —poverty.

Indeed, as we detail in a new paper, about 7 million childless workers are taxed into or deeper into poverty by federal taxes (see chart).

Increasing the EITC for childless workers, as the President and many in Congress have proposed, can help address this problem.  Making more childless workers eligible for the EITC — including those working full time at the minimum wage — and boosting the credit for workers who are now eligible would significantly lessen the degree to which the tax code increases poverty among these workers.

And, as I explain in National Journal, expanding the EITC for childless workers will actually help many families:

Many so-called “childless workers” are non-custodial parents who have financial and parenting obligations. The President’s proposal to expand the EITC would benefit about 1.5 million non-custodial parents. Their children do better when these parents are working and are a positive force in their lives.

Additionally, many childless workers are future parents. Extending the EITC’s pro-work benefits to them would boost their incomes today while improving their future ability to provide for their children. And a child’s success also depends on his or her extended family and community. A stronger EITC for “childless” adults can support children’s siblings, uncles, aunts, and grandparents, who may be considered “childless” for tax purposes even if they live in the same home as their younger relatives. By helping to increase work, and possibly improve marriage rates and reduce crime, a stronger EITC can also help strengthen the communities in which children live.

Click here to read the National Journal op-ed and here to read our full paper on the EITC for childless workers.

The Top 10 (Well, 11) Federal Tax Charts

April 15, 2014 at 11:05 am

To usher in Tax Day, here are our top 11 charts on federal taxes, which provide context for debates on issues like tax reform and deficit reduction.

Our first chart shows the sources of federal tax revenue.

Individual income tax revenues have held steady for many decades at a little under half of federal revenue.  The share of federal revenue from payroll taxes (mostly Social Security and Medicare taxes) grew sharply between the 1950s and 1980s and has since remained relatively stable.  Conversely, the share of federal revenue from corporate taxes fell sharply between the 1950s and 1980s and has remained at this lower level.

Our second graph reminds us what those taxes pay for.

Social Security, major health programs like Medicare and Medicaid, and national defense account for roughly two-thirds of federal spending.  Safety net programs (such as unemployment insurance and nutrition programs) and interest on the debt account for 12 percent and 6 percent of federal spending, respectively.  The remaining 18 percent goes to such other areas as roads, education, and health and science research.

The United States is a relatively low-tax country, as the chart below shows.  When measured as a share of the economy, total government receipts (a broad measure of revenue) are lower in the United States than in any other member of the Organisation for Economic Co-operation and Development (OECD), even after accounting for the modest revenue increases in the 2012 “fiscal cliff” deal and the taxes that fund health reform.

While high-income filers pay a large share of the nation’s taxes, the main reason is that they receive a large share of the nation’s income.  Moreover, focusing solely on the income tax — among the most progressive taxes — gives a distorted picture of the full set of taxes that different income groups pay.

The chart below provides a more complete picture.  It shows the share of all federal, state, and local taxes that each income group pays and what share of the nation’s income it collects.  As the graph shows, incomes in the United States are extremely polarized, and the overall tax system is only modestly progressive.  For example, the top 1 percent of earners received 22 percent of the nation’s income in 2013 and paid 24 percent of all taxes; the bottom 60 percent of people received 21 percent of the income and paid 17 percent of the taxes.

This largely reflects the fact that average tax rates increase modestly as you move up the income scale.  On average, the bottom 20 percent pays 19 percent of their income in taxes; the middle 20 percent pays 27 percent, and the top 20 percent pays 32 percent, according to Citizens for Tax Justice.

Policymakers considering tax policy changes should keep the economic context in mind, including the dramatic increase in inequality in recent decades.  Congressional Budget Office data show that incomes grew at much faster rates for high-income people than for everyone else between 1979 and 2010 (the most recent year available).

As the chart below shows, the average middle-income family had $9,500 less after-tax income in 2010, and the average household in the top 1 percent had $481,800 more, than if all groups’ incomes had grown at the same rate since 1979.

Many low-wage workers struggle to climb the economic ladder, particularly workers who are not raising minor children — the sole group that the federal tax code taxes into (and deeper into) poverty, as the chart below shows.  Often called “childless workers” — though many are non-custodial parents who have financial obligations to their children and play an important role in their lives — they pay substantial payroll taxes and begin paying income taxes while earning less than the poverty line (about $12,000 for a single worker).  The Earned Income Tax Credit (EITC) for these workers is far too small to offset their income and payroll tax liabilities.

The average childless worker who receives the EITC gets just $264, a small fraction of the EITC that other low-wage workers receive, as the chart below shows.  Moreover, childless workers under age 25 are ineligible for the EITC.

There are recent signs of bipartisan momentum to provide a meaningful EITC for childless workers.  President Obama as well as key House and Senate members have advanced proposals that would take a major step forward.  As the chart below shows, the EITC for a childless worker making poverty-level wages would rise from $171 to $841 under the President’s plan.  Moreover, the Treasury Department estimates that the President’s proposal would lift about half a million people out of poverty and reduce the depth of poverty for about another 10 million, under a poverty measure that includes the cash value of tax credits and benefit programs.  The congressional proposals are larger, and so would likely have larger anti-poverty effects.

Recent deficit-reduction measures, including the 2011 Budget Control Act’s funding caps and automatic cuts under sequestration, have been heavily tilted to spending cuts, rather than revenue increases.

If sequestration remains in place, 77 percent of the deficit reduction over 2015-2024 resulting from policy changes will come from spending cuts.  Just 23 percent will come from increased revenues, as the chart below shows. 

Policymakers agreed on a bipartisan basis last December to offset the cost of partially lifting sequestration for 2014 and 2015.

By contrast, however, the Senate Finance Committee has approved a package of “tax extenders” (expiring tax breaks, mostly for corporations) without offsetting the cost.  If continued for the next decade without offsets, the extenders would cost $484 billion.  That’s the equivalent of giving back more than half of the revenue savings from the 2012 “fiscal cliff” deal, which raised tax rates on very high-income taxpayers, as the chart below shows.  And if policymakers also continue the “bonus depreciation” tax for businesses — mistakenly in our view — the ten-year cost rises to $747 billion, wiping out nearly all of the fiscal-cliff savings.

Policymakers can reduce the deficit or finance investments by scaling back costly and inefficient “tax expenditures,” or spending delivered through the tax code in the form of tax credits, deductions and exclusions.

For example, House Ways and Means Chairman Dave Camp’s recent tax reform plan outlined dozens of specific cuts in tax subsidies.

As the chart below shows, tax expenditures cost well more than Social Security and also than Medicare and Medicaid combined.  Harvard economist Martin Feldstein, former chair of President Reagan’s Council of Economic Advisers, has said that “cutting tax expenditures is really the best way to reduce government spending.”

Tying Jobless Benefits to Corporate Tax Cuts Would Be Inappropriate

April 10, 2014 at 3:58 pm

Key House Republicans reportedly want to tie resuming federal unemployment insurance to extending various corporate tax cuts — including permanent extension of “bonus depreciation.”  Policymakers should reject any such effort, given that permanently extending bonus depreciation:

  • Entails huge cost.  Permanently extending the tax break, which allows businesses to take bigger upfront deductions for certain new investments, would cost $263 billion over the next decade, according to the Congressional Budget Office (CBO).
  • Has little bang for the buck.  Enacted in 2008, bonus depreciation was among the weakest federal measures to promote jobs and growth in the Great Recession.  Mark Zandi of Moody’s Analytics rated it near the bottom of a wide range of stimulus options, estimating that it delivered only 29 cents of additional gross domestic product (GDP) for each dollar of budgetary cost.  (Zandi rated unemployment benefits near the top, estimating that it delivered $1.55 of additional GDP per dollar of cost; see chart.)

    CBO has reached similar conclusions.  Also, the Congressional Research Service in 2013 cited studies by the Federal Reserve and others as providing “additional support for the view that temporary accelerated depreciation is largely ineffective as a policy tool for economic stimulus.”

    Most recently, Goldman Sachs noted “multiple indications that firms do not respond strongly” to bonus depreciation and concluded that its expiration “should have little effect” on the economy.

    It’s also worth noting that bonus depreciation only stimulates economic growth and job creation at all in a weak economy if businesses expect it to be temporary and thus accelerate their investments before it expires.  Permanently extending the tax break would eliminate even this weak effect.

  • Is at odds with recent tax reform efforts.  The recent plan from House Ways and Means Chairman Dave Camp (R-MI), like most other tax reform plans, moves in exactly the opposite direction, scaling back or eliminating various depreciation tax breaks.

Instead of using the plight of Americans who’ve been looking for work for at least six months as a bargaining tool to enact ill-advised corporate tax cuts, the House should quickly pass the Senate-approved bill to renew emergency unemployment insurance.

GAO: Give IRS Needed Authority to Oversee All Tax Preparers

April 10, 2014 at 12:15 pm

The Government Accountability Office (GAO) this week added its voice to those calling on Congress to give the IRS the needed authority to require all paid tax preparers to demonstrate basic competence.

While some paid preparers (such as attorneys and certified public accountants) are subject to Treasury Department regulation and must meet professional competency requirements, many others — known as “unenrolled preparers” — aren’t.  The GAO pointed out that “in most states, anyone can be an unenrolled preparer regardless of education, experience, or other standards.”

The IRS launched a major compliance initiative in 2010 to require a basic level of competency among paid tax preparers.  But, as we explained recently, courts have ruled that the IRS lacks the statutory authority to pursue the initiative.  The President has asked Congress to give it that authority.

At a Senate Finance Committee hearing Tuesday, the GAO — Congress’ own watchdog —added its voice to the call for Congress to act:

Providing IRS with the necessary authority for increased oversight of the paid preparer community will help promote high-quality services from paid preparers, will improve voluntary compliance, and will foster taxpayer confidence in the fairness of the tax system.

Committee Chairman Ron Wyden (D-OR) noted that the experience of his state, one of four that regulate paid preparers, underscores the importance of providing such authority:

I’m proud to say my home state gets this issue right.  Tax preparers in Oregon study, pass an exam and keep up with the changing landscape of the tax code in order to maintain their licenses, and those standards work.  The GAO took a look at the system a few years ago and found that tax returns from Oregon were 72 percent likelier to be accurate than returns from the rest of the country.  That puts fewer Oregonians at the mercy of unscrupulous preparers and reduces the risk of the dreaded audit.

These statements echoes similar recommendations from other experts.  Nina Olson, the IRS National Taxpayer Advocate, has explained that the IRS initiative can improve compliance in the Earned Income Tax Credit (EITC).

“Unenrolled preparers — those who are neither attorneys, certified public accountants, nor enrolled agents — account for more than three-fourths of EITC returns that are prepared by a paid preparer,” Olson testified in February.  Unenrolled preparers not affiliated with a national tax preparation firm “are most prone to error,” she noted:  49 percent of the EITC returns they prepare contain errors that average 33 percent of the amount claimed.

Congress should heed the calls of the President, the IRS, the Taxpayer Advocate, and now its own GAO.

Reducing EITC Errors

April 8, 2014 at 11:07 am

“[W]ith almost no regulation of the [commercial tax preparer] industry and a tax code that is forbiddingly complex, the billions flowing into low-income households this time of year, primarily in the form of the earned-income tax credit [EITC], present a ripe target for the unscrupulous,” the New York Times reports.  Inadequate regulation of commercial preparers — the subject of today’s Senate Finance Committee hearing — leads not only to cases of severe overcharging but also many errors in EITC claims.  As our newly revised report explains, Congress should give the IRS the needed authority to reduce EITC errors by commercial preparers:

Commercial preparers file roughly two-thirds of all EITC returns, and the IRS believes most EITC errors occur on commercially prepared returns.  In 2010, the IRS launched a major initiative to require preparers who lack professional credentials to pass a competency examination in order to be certified to prepare tax returns.  A small number of paid preparers challenged this initiative in the courts, arguing that the IRS lacks the necessary statutory authority to implement it.   (Many other preparers have supported the IRS initiative.)

A few weeks ago, the U.S. Court of Appeals for the District of Columbia upheld a lower court’s decision in favor of the preparers who brought the suit.  Congress should quickly provide the IRS with the needed authority.  Without that authority, the IRS cannot move forward with key aspects of its plan to reduce EITC overpayments resulting from preparer errors.

Our report also outlines other ways Congress can reduce EITC errors, such as by reversing its recent course and giving the IRS adequate funding.  IRS funding is at its lowest level in real terms since 2000, despite a 10-percent increase in tax returns over this period.  Cuts in the IRS budget can actually raise budget deficits by making it harder for the IRS to enforce compliance with the EITC rules and other areas of the tax code.  Treasury Secretary Jack Lew has noted, “for every dollar we spend on our enforcement initiatives, we expect to collect six dollars in revenue.”