A New Proposal Would Give a Much-Needed Boost to Pennsylvania’s Working Families

Senator Bob Casey today joined Senators Sherrod Brown, Michael Bennet, Dick Durbin, and Ron Wyden to introduce the Working Families Tax Relief Act (WFTRA), legislation that would begin to fix our tax laws to help working people with low-wage jobs make ends meet as they work to support themselves and their families. The proposal would strengthen the highly successful Earned Income Tax Credit (EITC) for working families with children and working people without children at home, ensure that millions of poor children aren’t left out of the Child Tax Credit (CTC), and boost the CTC for families with very young children. A summary of key provisions of the WFTRA is included below.

The proposal stands in stark contrast to the 2017 Trump tax law, which was heavily tilted in favor of America’s wealthiest households and most profitable corporations. Even as it showered massive tax cuts on the wealthy and corporations, the 2017 tax law’s signature “middle class” tax cut provided only a token CTC increase (from $1 to $75) to 825,000 children in low-income working families in Pennsylvania. 

If enacted, the WFTRA would improve the financial security of 1,641,000 low- and middle-income Pennsylvania families, benefiting more than four million Pennsylvanians, many of whom are children. Nationally, the WFTRA would cut child poverty by 28 percent, lifting 3.1 million children out of poverty and making another 7.7 million children less poor.

For working families, this would mean more money for basic necessities, home repairs, maintaining a car to get to work, or in some cases, additional education or training to get a better, higher-paying job. The WFTRA would give working people a fair shot to get ahead and help low-income parents give their children a good start in life, with lasting benefits for millions of children.

The Pennsylvania Budget and Policy Center applauds Senator Casey for cosponsoring this important measure and calls on Senator Pat Toomey, along with the rest of Pennsylvania’s congressional delegation, to substantially strengthen the EITC and CTC and help give working people and their children a fair shot to get ahead.

Summary of Working Families Tax Relief Act (WFTRA)

Major expansion of the Earned Income Tax Credit for Childless Workers

The EITC is a proven policy success story, lifting millions out of poverty and rewarding work for millions of families.  Its largest shortcoming, however, is the very small credit it provides workers who are not raising children in their homes.  This is the only group of Americans that the tax code taxes into, or deeper into, poverty. 

WFTRA addresses this shortcoming with a major expansion of the EITC for childless workers, substantially raising the maximum credit and expanding its age range as shown in the following table:

 

Substantially boosting the EITC for families with children

WFTRA also builds on the success of the EITC for families with children by increasing its maximum credit and phase-in rate by roughly 25 percent. Both the income level at which the EITC stops phasing in and the income level at which it begins to phase down are unchanged from current law, but the increase in the maximum credit results in an increase in the income level at which the EITC phases out entirely.

Important Child Tax Credit improvements – including full refundability

The proposal makes key improvements in the Child Tax Credit (CTC) that will boost the economic security of millions of low- and moderate-income families with children and reduce poverty.  They include:

  • Making the CTC fully refundable: The current CTC is only partially refundable – the refundable portion of the credit is limited to 15 percent of a family’s earnings above $2,500, up to a maximum of $1,400 per child. This is well below the $2,000 per-child that supporters of the 2017 tax law have touted. It means that a home health aide with two children making $18,000 a year gets a CTC of $2,325, while two married corporate lawyers with two children who make $400,000 get a CTC of $4,000. The WFTRA makes the CTC fully refundable for the first time, so that all low- and middle-income families with children can receive the full support it provides. Tax relief from the refundable CTC will also be paid out to families via periodic payments. The $2,000 per-child maximum credit would be adjusted for inflation going forward.
  • A new $3,000 Young Child Tax Credit (YCTC): Families will receive an extra $1,000 of CTC for each child under the age of six, making the total CTC for young children $3,000. Research shows that this is a period of great importance and vulnerability in children’s lives, and that more adequate family income in these years can improve poor children’s life opportunities. 
  • Reducing the CTC phase-out threshold: A prime example of the upside-down priorities of the 2017 tax law is that it roughly tripled the income level where the CTC begins to phase down, from $110,000 for married couples ($75,000 for single parents) to $400,000 ($200,000 for single parents). The WFTRA reduces the income level at which the CTC begins to phase down to $200,000 for married parents ($150,000 for single parents). Please note that this is the threshold at which the CTC begins to phase down; a married couple with two children age 6 or older that makes up to $280,000 would still receive some CTC – as would a married couple with two young children until its income reaches $320,000. The phase-out threshold would be adjusted for inflation going forward.

Expanding both the EITC and CTC would magnify the benefits for working families

The combined impact of the EITC and CTC expansions would boost the incomes of an estimated 44 million households, benefiting more than 112 million people and lifting 28 million people above or closer to the poverty line, including 11 million children. It would benefit an estimated 24 million white families, 8 million Black families, 9 million Latino families, and 2 million Asian American families. To see how the WFTRA would improve millions of lives, consider the following examples:

  • A mother of a 4-year-old and a 7-year-old works as a home health aide making $20,000. Today, her CTC is $2,790. The WFTRA would raise it to $5,000, an increase of $2,210. And the bill would also increase her EITC by about $1,460. Altogether, the WFTRA would increase her income by about $3,670. 
  • One partner in a married couple works full time as an auto mechanic and makes $45,000 a year, while the other takes care of their two young children. The WFTRA would increase their EITC by about $1,460, and they’d also receive an additional $2,000 from the YCTC. In total, they’d receive about $3,460 more under the WFTRA.  
  • A fast food cook makes the federal minimum wage; her annual earnings – $14,500 – put her only slightly above the poverty line for a single individual (which is estimated to be $13,340 in 2019). But she must pay over $1,250 in combined federal individual and payroll taxes, so the tax code actually pushes her below the poverty line. The WFTRA would increase her EITC by about $1,530. She’d no longer be taxed into poverty.  

Over the next two years, various policymakers are expected to introduce a number of proposals to boost struggling families’ incomes, including minimum wage increases, more vigorous anti-trust enforcement, and other ways to restore bargaining power to rank-and-file workers. The WFTRA’s tax-credit expansions – which would provide substantial wage supplements to many families – complement such efforts and deserve to be a policy priority. Both types of policies are needed to address the powerful economic barriers that many American families face.  

 

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