Report: Working-poor Families Do Have “Skin in the Game”
As we honor the value of hard work, Labor Day provides a particularly good opportunity to reflect on the efforts of families who often work the hardest but still struggle to attain financial security.
Adding to that perspective is a timely, new report by the Marguerite Casey Foundation called “’Skin in the Game’: The Federal Tax System, Tax Reform , and Poor Families.” It reiterates the fact that those working-poor households who pay no federal income taxes nonetheless contribute substantially to the government that serves us all.
Counting not only federal income taxes but payroll, state and local taxes, Americans living below the poverty line face an average, effective tax rate of almost 15 percent, the report states. “Consequently, while they may not have federal income tax liability, they do contribute tax revenue to support federal and state governmental institutions,” it adds.
The report counters often-repeated and histrionic arguments that too many households benefit from government services even while they “pay no taxes,” an argument generally hinging on questions related to the federal income tax. Yet as many policy experts have noted in earlier research, there are several reasons a household might owe no federal income taxes – reasons that aren’t specific only to low-income families.
Personal exemptions, standard and itemized deductions, and tax benefits for the elderly represent a few of many measures that can help offset income tax liabilities.
Two others are the Earned Income Tax Credit (EITC), and Child Tax Credit (CTC), which target their help to households most in need of assistance. And these are examples of measures that represent years of bipartisan policy decisions aimed at deliberately avoiding federal income tax bills for Americans working and living in poverty.
Some federal policymakers have proposed allowing key EITC and CTC improvements to expire on schedule in December while retaining a series of reduced income tax rates, including those benefiting exclusively wealthier households. Such proposals actually would have the effect of hiking taxes on the lowest-earning families while reducing them for middle- and upper-income households.
Policy changes with those results “would conflict with the longstanding principle that the federal government should not tax those who cannot afford to meet their own basic needs. Further, these changes could reduce incentives to work and force families to forgo expenditures on food, health care, and other areas,” according to “Skin in the Game.”
NCTC believes our nation’s next tax-policy decisions must begin with preserving a strong EITC and CTC, as well as retaining the American Opportunity Tax Credit that helps students afford a college education. We also should end those reduced tax rates that help only the wealthiest households. Particularly at a time we desperately need to reduce rather than grow the federal deficit, we can’t afford to retain these costly rate reductions for households that need them least.
That’s how we can best ensure our public policies reflect the value that we profess to place on hard work – especially when it comes to the working families who struggle the hardest in life.
By Sean Noble, Director of Public Policy & Research