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


4 Questions About Lee-Rubio Tax Plan

October 6, 2014 at 4:18 pm

With tax reform potentially on Congress’ agenda next year, the tax plan that Senators Mike Lee (R-UT) and Marco Rubio (R-FL) sketched out recently will merit a close look.  Its marquee proposal would supplement the current Child Tax Credit (CTC) with an additional credit of $2,500 per child.  We can’t evaluate the plan, which the senators say “won’t only help revive the American dream, but also make it more attainable for more Americans than ever before,” until they provide the details.  Here are four things we’d like to know about its changes to the CTC and the other major tax credit for working families, the Earned Income Tax Credit (EITC).

  1. Would “stock clerks” with children receive the new child tax credit?  Lee and Rubio write that Americans “see an economy that benefits stockholders but not stock clerks.”  But another tax plan that Senator Lee released in the spring, which also featured an additional child tax credit, denied the new credit to many working-poor families even though high-income families with children would have benefitted.
  1. Would low-income families keep their current Child Tax Credit?  Under the prior Lee plan, a single mother who works for the minimum wage and has two kids would have lost $1,725 in existing CTC benefits because the plan let key improvements to the existing CTC (as well as the EITC) expire in 2018.  But a millionaire with two children would qualify for a new child credit worth more than $5,000.
  1. Would the plan’s “retooling” of the EITC reduce poverty?  Lee and Rubio promise to “retool” the EITC in combination with means-tested programs (like SNAP, formerly food stamps), saying that the phasedown of these benefits in response to higher earnings creates high “marginal tax rates.” As we’ve explained, though, changes to reduce these marginal tax rates can also shrink needed assistance to poorer families — or increase program costs.  The EITC and CTC together lift more children out of poverty than any other program; “reform” can mean a lot of things, so when the details are available, we’ll be looking at whether the plan cuts assistance to the neediest families, thereby worsening poverty, or is structured to reduce poverty.
  1. Will the plan expand the EITC for childless workers, as leading members of both parties favor?  Working adults who aren’t living with and raising children are the only group that the federal tax system taxes into (or deeper into) poverty.  President Obama and House Budget Committee Chair Paul Ryan (R-WI) have both proposed expanding the EITC for this largely left-out group.

Several months before releasing his tax plan this spring, Senator Lee called for tackling the “opportunity crisis” of “immobility among the poor,” “insecurity in the middle class,” and “cronyist privilege at the top” and promised that his tax plan would address these problems.  But when the details finally appeared, they didn’t live up to his speech.  Let’s hope this time’s different.

President Takes Important First Step Against Corporate “Inversions”

September 23, 2014 at 5:16 pm

In an important first step to stem “inversions,” in which a larger U.S. multinational merges with a smaller foreign firm to avoid U.S. taxes, the Treasury announced new rules that not only effectively remove one way that taxpayers subsidize such deals, but also tighten existing limits on them.  The President should (and likely will) look for further steps the Administration can take, and Congress should do its part to protect the corporate tax base from this brazen tax avoidance.

Here’s some background.  Corporations do not pay taxes on foreign earnings until they bring them back to the United States.  Many firms are looking for ways to access their foreign-held profits while avoiding U.S. taxes — the same taxes that domestic firms pay on their profits.  A corporate inversion is one way to achieve this goal, which is why firms such as Medtronic, AbbVie, Pfizer, and Mylan have all sought or announced plans to invert.

The Treasury’s new rules aim to discourage firms from pursuing such tax avoidance inversions.  One new rule prevents inverted firms from using so-called “hopscotch” loans to access a foreign subsidiary’s prior earnings and avoid U.S. tax.  These loans, which a subsidiary in a foreign tax haven makes to the new foreign parent (thereby “hopscotching” over the former, U.S.-based parent in order to avoid U.S. tax), will now count as U.S. property and thus be taxable.

The Treasury is also closing some loopholes in existing anti-inversion regulations, such as tightening the rule that a U.S. firm combining with a foreign firm continue to be taxed as a U.S. firm if it owns 80 percent or more of the combined company.  The Treasury rule aims to ensure that this 80 percent threshold is a real one.

The President and several key members of Congress have called for legislation to lower this threshold even further.  They want to set the threshold at 50 percent, meaning that a U.S. firm could not invert without losing control of the new firm.  That would act as a strong deterrent against inversions.

The President and Congress should also pursue how to crack down on “earnings stripping,” which allows companies to use debt to siphon profits out of the United States.  A further option would be to require companies that invert to pay the taxes they owe before they “leave” the country.  The President and Congress should take these next steps to combat the inversion epidemic.

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.