CHN: Tax Policies in the FY2017 Presidential Budget Request – Increased Support for Those with Low Incomes; More Revenues, Largely from High Earners and Corporations
The President’s budget includes several proposed changes to tax credits that would benefit low- and middle-income families. First, the budget would strengthen and expand the Earned Income Tax Credit for workers not raising children – the one group the federal tax system taxes into, or deeper into poverty. It would also lower the eligibility age for claiming the EITC from 25 to 21 and also newly include 65- and 66-year olds. In an example of the proposal’s impact, a single worker working full-time at the current federal minimum wage now only receives an EITC worth $23; the proposed expansion would increase that to $542. House Speaker Paul Ryan (R-WI) has proposed nearly identical expansions to this tax credit.
The budget would triple the Child and Dependent Care Tax Credit for families with young children (to up to $3,000 per child) and make the full credit available to families earning up to $120,000 per year. This credit benefits families with young children and dependents who are elderly or have disabilities. The expanded credit would help 5.3 million families to afford child care costs for 6.9 million children, including 3.6 million children under five.
A new tax credit would reduce higher tax rates paid by two-earner couples. This credit for married couples in which both people work would provide up to $500 for 23.4 million working families.
The President would expand the education-focused American Opportunity Tax Credit and make more of it refundable for low-income working families. He would also index it to inflation to protect its value in the future.
The budget would raise roughly $3.2 trillion in new tax revenues over the next 10 years, primarily from corporations and the wealthiest taxpayers. Specifically, the President would increase the top tax rate on capital gains to 28 percent, bringing in $235 billion over 10 years, end preferential tax breaks for hedge fund managers (worth $19 billion over 10 years), and restore estate and gift taxes to their higher 2009 levels, raising more than $200 billion over the next decade. The President proposes to close a loophole in the Medicare tax for high-income families, which helps fund the Affordable Care Act. Closing this loophole, which relates to high-income families’ treatment of business income, would raise $271 billion over the next ten years.
The budget would institute a one-time tax on U.S. corporations holding profits offshore. While the one-time tax on offshore profits would bring in nearly $300 billion over 10 years, it would dramatically reduce tax liabilities for many corporations that shelter income overseas, compared to enforcing the 35 percent corporate tax rate they have been dodging. According to Citizens for Tax Justice, this plan would provide $82 billion in tax reductions to just 10 of these big corporations. The President repeats his proposal to limit the value of deductions for taxpayers, affecting couples with incomes of $250,000 or more, to produce a 10-year revenue gain of more than $645 billion. A small fee imposed on large financial institutions would generate more than $160 billion over 10 years. Seeking higher tax payments from millionaires, the budget proposes a new “Fair Share Tax” that would increase revenues by $37.5 billion over 10 years.
An estimated one-sixth of the tax increases included in the budget would affect low- and middle-income families: a proposed increase in the federal tobacco tax (worth $115 billion through 2026) and a $10.25 per barrel fee on oil that would affect gasoline and heating oil prices (generating $319 billion over a decade). The oil fee is intended to replace shrinking revenue needed to pay for road and transit maintenance. The President has in the past proposed funds from an increased tobacco tax for expanded early childhood education.
Although most of the new revenues would allow for increased expenditures without enlarging the deficit, about 10 percent of the revenue gains would be plowed back into tax cuts, with 60 percent going to low- and middle-income families and the rest going to business.