Senator Patty Murray (D-WA) introduced new legislation, called the “21st Century Worker Tax Cut Act,” on March 26, 2014, which would increase the maximum Earned Income Tax Credit (EITC) for childless workers to about $1400 from $487 currently and reduce the childless worker eligibility age for the credit from 25 to 21.

It would also create a new tax deduction for low-to-middle income families with two earners and at least one child age 12 or less, allowing a 20% deduction on the secondary earner’s income.

For middle-income families the tax deduction would apply only to those with gross-adjusted family income below $130,000 (with phase-out starting at $110,000) and apply to no more than $60,000 for the secondary earner. This would enable a middle income family to benefit from a lower federal tax bill.

For low income earners, the tax deduction would help increase EITC benefits. For example, if a family has two minimum wage workers and the earnings of one is reduced by 20% for purposes of calculating the EITC, they may be able to apply for the EITC. At the present time, two minimum wage workers might earn more than the maximum allowed for calculating the credit. The additional amount of credit would likewise help to offset childcare, transportation and other costs associated with the working status of a second earner. Thus, working poor families would finally see economic gain from a spouse’s labor supply.

The bill also doubles the penalties for taxpayers who fail to comply with the IRS’ requirement for “due diligence,” a reform that addresses Republican concern about fraudulent claims. Since about 70% of all EITC claims are handled by tax preparers, the penalty would primarily fall on their bank accounts.

The bill already has two co-sponsors: Senator Jack Reed (D-RI) and Senator Sherrod Brown (D-OH).

As the EITC operates now, people under the age of 25 who do not have custody of their children, even though they are paying child support, are ineligible for the EITC. Those between the ages of 25 and 64 can receive the EITC, but the maximum credit is $487, compared to an average credit of $2,905 for families with children, according to a March 26 article in the Nation. The changes proposed in Murray’s bill in expanding benefits to childless adults would benefit about 13 million people, a Treasury Department estimate.

The expanded EITC in Murray’s bill would cost $144.9 billion over 10 years, which she proposes to pay for by closing widely-criticized tax loopholes used by corporations and their executives.

First, by reducing the tax breaks a corporation may take on paying stock options to an executive to $1 million per year. This change would subject stock options to the same $1 million per year deduction limit that already applies to cash compensation.

Second, in an attempt to deter companies from shifting their U.S. profits to offshore tax havens (e.g. to Bermuda or the Cayman Islands), corporations would be required to pay an effective tax rate of 15% on these profits unless they were derived from legitimate business operations in a foreign country.

Given past Republican support for the EITC, it will be intriguing to see how Republicans will react to Senator Murray’s bill. In the recent past they have denied the long-term unemployed any emergency benefits; have fought to deny Medicaid benefits to low-income families and made repeated attempts to repeal the Affordable Care Act (ACA); cut billions of dollars from food stamps; and staunchly resisted proposals to raise the minimum wage, yet they have simultaneously professed their commitment to the poor.

The one area that appears exempt from Republican criticism is the EITC; in fact, the tax credit plan has received praise in Paul Ryan’s report on the War on Poverty. Others (e.g. Marco Rubio, Glenn Hubbard, Gregory Mankiw) have also spoken favorably of the efficiency and effectiveness of the EITC, especially as a tool to allay dependency. By encouraging individuals to work, the EITC addresses the enduring criticism that traditional transfer programs discourage work.

Interestingly, the president’s 2015 budget proposal also contains provisions for boosting the EITC for childless workers, but the wisdom of Murray’s bill is that she couples her EITC increases with the dual earner deduction piece, of benefit to the middle class as well as the poor. In addition, Murray’s proposal will pay for these increases by closing wasteful tax loopholes both parties have proposed eliminating. The main difference is that the House Chairman of the Ways and Means Committee, Dave Camp (R-MI), proposes that all funding from his reforms of closing tax loopholes be used to help lower the tax rates, and other Republicans are adamant that all savings be used for deficit reduction.

However, if Republicans really want to burnish their credentials in support of anti-poverty programs and take a small step toward alleviating income inequality, “The 21st Century Worker Tax Cut Act” provides an excellent starting point for negotiation. Will they engage with it seriously? A key question is: How robust are they willing to let the EITC become and will they agree to pay for it by closing wasteful tax breaks?

NETWORK supports the elements of Senator Murray’s bill, which would help struggling workers and their families, and begin the long trek toward greater income equality.

Corporate tax-dodging deals known as “inversions,” in which a U.S. multinational shifts its tax domicile to a lower-tax country, would be restricted for two years under legislation proposed in both houses of Congress on May 19, 2014. Representative Sander Levin and Senator Carl Levin, brothers from Michigan, proposed both bills, each of which had more than a dozen co-sponsors, all Democrats. The rationale behind the two-year moratorium would give Congress time to pursue broad changes in the corporate tax code. As Senator Ben Cardin (D-MD) said, “I look forward to redoubling our efforts on broader tax reform legislation that can fix our corporate tax code and make it more competitive.”

How does “inversion” work? Under current tax law, companies can create the deal of inversion and move overseas if foreign shareholders own 20% or more of their stock. Even if most of the business activity and corporate headquarters of the “new” company are in the U.S., the company would still be a “foreign” corporation for tax purposes. Many U.S. companies climb the 20% barrier by acquiring a foreign rival. The Levins’ bills would increase the threshold to 50% for two years, a threshold much more difficult to achieve. This proposal mirrors one in the President’s 2015 budget submission, which the Treasury estimates would raise $17 billion in revenue over the next decade.

Once a corporation is foreign, any profits earned in the U.S. are subject to U.S. taxes, but offshore profits are not. According to Citizens for Tax Justice, inversion makes it easier for a corporation to avoid U.S. taxes because corporate inversions are often followed by “earnings-stripping,” which makes U.S. profits appear, on paper, to be earned offshore. Corporations load the American part of the company with debt owed to the foreign part of the company, and the interest payments on the debt are tax deductible, thus reducing American profits “on paper.”

“These transactions are about tax avoidance, plain and simple,” said Senator Carl Levin (D-MI) chairman of the Senate Permanent Subcommittee on Investigations, who is the bill’s lead sponsor, in introducing the bill in the Senate. “Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.” Tim Kaine (D-VA) also stated: “This is about leveling the playing field and rooting out flagrant tax abuse in our system that could lead to billions of dollars of lost revenue.”

A splurge of deals resembling those of Pfizer (who recently made a bid to acquire the British pharmaceutical Astra-Zeneca, but was recently rebuffed and made it clear the company would not pursue a hostile takeover) or the U.S. advertising firm Omnicon Group Inc. might increase the chances of enactment of the Levins’ bills, but the odds are not bright that the bills will pass in either house. Not only is the opposition coming from Republicans in Congress, but also outside organizations, such as the Alliance for Competitive Taxation, the Rate Coalition and Right Wing News argue that the U.S. corporate tax system is unnecessarily complicated and global rivals pay less than the U.S. corporate rate of 35%. (As a matter of fact, both parties agree on these facts). However, Fortune 500 corporations that were consistently profitable from 2008 through 2012 paid, on average, just 19.4% of their profits in federal income taxes over that period. In fact, 26 corporations paid nothing in taxes over that 5-year period.

Most Republicans say they want to address inversion as part of broader tax code changes. Democrats respond that they (Republicans) ran away as fast as they could from Dave Camp’s (R-MI) bill to revise taxes. Democrats themselves have problems with several parts of Camp’s bill, e.g., moving to a territorial system under which 95% of the foreign earnings of U.S. companies would not be taxed at all. However, since the U.S. corporate rate of 35% is the highest among developed countries, lawmakers in both parties advocate lowering it, but disagree on the particulars. With the two parties deadlocked over how to proceed on tax revision, it’s highly unlikely that any changes will occur this year, leaving a window for firms like Pfizer and others considering a move.

Citizens for Tax Justice point out that no matter what the U.S. corporate tax rate is, there will always by a few countries with tax rates that are lower than ours – maybe even 0 – and these countries are definitely tax havens. In 2011, 40% of U.S. foreign profits were booked in Bermuda, Luxembourg, Switzerland, the Netherlands and Ireland, all of which are tax havens. Is it fair for American companies to pretend that their profits are earned in these countries even when they are plainly carrying out their business in the U.S.?

Reports indicate that at least 15 other U.S. corporations are presently considering corporate inversions similar to that of Pfizer. Pharmaceutical companies have been especially active in merging with other pharma companies in Ireland, where the corporate tax rate is only 12.5%. Many of the inversions have been done by health care companies. But technology firms, including Applied Materials and even the banana producer Chiquita have moved overseas, at least for tax purposes. U.S. drugstore chain Walgreen Co. has been under pressure from some investors to do an inversion with European rival Alliance Boots Holdings, the Financial Times reported. Walgreen bought a 45% stake in Alliance Boots in 2012, with an option to buy the rest in 2015.

As Richard Murphy commented in an August 13, 2013 article in the Financial Times, when corporate inversions to Bermuda were all the rage in the early 2000s, the U.S. clamped down on the practice when the abuses became too flagrant. Senator Charles Grassley (R-Iowa) said in 2002 during this rash of inversions: “These expatriations aren’t illegal, but they’re sure immoral.” In 2004 Congress passed rules treating such firms as U.S. businesses for tax purposes unless they had substantial business in the new location. In 2012 these regulations were strengthened further.

If lawmakers were able successfully to prevent the most egregious forms of inversion as recently as 2012, certainly Congress can put a stop to this latest round by tightening the rules via the Levins’ bills. Preventing corporate inversions should not be complicated, and Congress should move quickly to pass this stand-alone legislation at this time, with the intent to tackle full-scale corporate tax reform in 2015. There are many proposed methods for achieving tax reform, but the Center for American Progress strongly supports a corporate minimum tax, which would eliminate current incentives to park money in tax havens, since any foreign earnings taxed at very low rates would be immediately subject to the minimum tax.

Reforming the tax code is an essential component of building a competitive economy along with investing in workforce development, education, science, infrastructure and ensuring the common good through adequate safety-net precautions. As the Faithful Budget states so well, we must have “reasonable revenue for responsible programs.” While tax reform is an important goal, it should not be used as an excuse to block actions that will stop tax avoidance through schemes such as corporate inversions. As Senator Carl Levin said in introducing the bill, “The Treasury is bleeding red ink and we can’t wait for comprehensive tax reform to stop the bleeding.”

June 19 Update

On June 11, Senator Elizabeth Warren’s attempt to aid those carrying student loan debt unfortunately failed to get the required 60 votes to achieve cloture in the Senate. The bill, called the “Bank on Students’ Emergency Loan Refinancing Act,” did get the support of three Senate Republicans, two of whom had signed Norquist’s no-tax-increases pledge, but that number only gave the Democrats 56 votes, four short of the threshold. Senator Harry Reid (D-NV), Senate Majority Leader, voted against the motion for procedural reasons so he could call the bill up again, which means the bill really only lacked three votes.

Republicans said the bill did nothing to reduce borrowing or lower education costs, and they accused Democrats of playing politics by highlighting an issue that was bound to fail. In fact, Senator Lamar Alexander (R-TN), ranking member of the Senate Health, Education, Labor and Pensions Committee, called the bill a “partisan political stunt” that included a “class warfare tax.” He was particularly incensed that Warren’s bill had skipped the committee process.

Despite the setback, Warren later said at a press conference that she plans to reintroduce the bill after she has gained more bipartisan support. If that fails again, Senator Tom Harkin (D-IA) held out hope to student loan borrowers through his committee’s reauthorization of the Higher Education Act, the main law that lays out student loan policy. However, the rewriting process for that bill, which expires this year, is just beginning and it may take a very long time before it is signed into law.

Senator Warren would have paid for the student loan refinancing bill with the so-called “Buffet Rule,” whereby a minimum 30% income tax payment would be levied on people earning between $1 and $2 million each year. Although Senator Warren initially said that she was open to alternative plans to replace the $66 billion lost to the Treasury by her rate reduction, no one across the aisle had any to offer. The “Buffet Rule” started out as the principle that the tax code should be reformed in a way that ensures that millionaires don’t pay lower taxes than middle-income people. A “Citizens for Tax Justice” (CTJ) report explains that because investment income, which primarily goes to the wealthiest Americans, is subject to lower rates under the personal income tax and is not subject to Social Security taxes, such taxes do foster inequity among people.

The vote on June 11 followed two days where President Obama highlighted the issue first to graduates in Massachusetts and then from the White House when he announced executive action to let borrowers before 2007 (about 5 million people) cap their monthly payments at 10% of their income. Unfortunately, none of this helped the Warren bill, which could have assisted an estimated 25 million people refinance their debt at less than a 4% interest rate.

As noted in my previous blog (below), student loan debt exceeds $1 trillion and has emerged as a major drag on the economy, affecting the young as well as the old and especially people of color. Until the Warren bill or the reauthorization of the Higher Education Act pass, there are few options available to worried borrowers. Some financial institutions have responded in a variety of ways, but there are numerous hurdles preventing them from assisting these borrowers. These hurdles range from the risks associated with attracting troubled borrower to the way student loans are packaged into securities and sold to investors. The terms of the latter often preclude any modifications of the loans that underpin the securities.

May 9, 2014

With extremely low interest rates available to those with decent credit ratings, homeowners, businesses, even state and local governments, have been rushing to refinance their debts. One group not among them is made up of students obtaining money for their education, even though student loan debt is the fastest growing category of debt – far exceeding auto loans, mortgages and even credit card debt. Why? As the Center for American Progress (CAP) put it in a November 2013 article, “one of the toughest things about student loans is [their] inflexibility.”

Student loans can be consolidated, but not refinanced legally today. Interest rates hit a high of 8.25% in the late 1990s and student loans were given at those rates. Today, those same loans are available to college students at a rate of 3.86% interest, thanks to legislation passed last summer (Bipartisan Student Loan Certainty Act), yet students who borrowed in the 1990s until June 2013 are still paying at interest rates charged at the time of their loans.

In that same November 2013 article, CAP said, “Providing student-loan borrowers the opportunity to refinance their debt is a way to solve a significant portion of the growing student-debt problem. Refinancing could significantly reduce monthly payments, increase repayment rates, and stimulate the economy by freeing up a portion of each student-loan borrower’s income that could be spent in other sectors of the economy or saved for larger purchases.”

The ripple effect in the economy would be extremely positive as those with less to pay in student loans could purchase homes, furniture, appliances and autos (the list could go on), which would then stimulate these industries, driving job growth, economic stability and all the other effects that come with economic stimulus.

The beauty of Senator Elizabeth Warren’s (D-MA) new bill, introduced on May 6, is that it is coming to the aid of nearly 40 million Americans saddled with $1.2 trillion in student debt. Her bill, called the Bank on Students Emergency Loan Refinancing Act, would allow borrowers with outstanding student loan debt to refinance at the lower interest rates (3.86%) currently offered to new borrowers. The most recent data from the end of 2012 found that borrowers had an average of $29,400 in student debt by the time they completed their courses.

By allowing student debtors to refinance at the current interest rate of 3.86%, Senator Warren’s proposal would reduce the amount of profit the higher rates are producing for the federal government. Warren pointed to a recent GAO report that estimates that the government will make $66 billion off of federal student loans dispersed between 2007 and 2012 as an indicator that there is room for refinancing. In her statement on the Senate floor, Senator Warren said that the current debts owed in student loans are unsustainable, destabilizing individual families and a measurable drag on our economy. She maintained that from 2004 to 2012 the average student loan balance increased by 70%.

Because of the economic repercussions of student loans as well as the fact that the “Higher Education Act of 1965” has to be reauthorized in 2014, five bills have been introduced by members of Congress during this past year to address the student debt problem, including that of Senator Warren, which appears to be the most viable.

Senator Warren’s bill has more than 20 co-sponsors in the Senate and Reps. George Miller (D-CA) and John Tierney (D-MA) have filed a companion bill in the House. At the present time, Warren proposes to replace the profit lost to the Treasury by raising the tax rate of people making more than $1 million annually. However, she later told the Wall Street Journal that she would be flexible about how the refinancing would be funded.

We at NETWORK heartily endorse Senator Warren’s bill for several reasons. Most importantly, by reducing debt, refinancing will allow borrowers to build their assets, especially through home ownership, thus helping to reduce the inequality that bedevils this country.

Home sales are also drivers of economic growth, as Moody Analytics explains, in that each newly created household (i.e. new home purchased) leads to approximately $145,000 of economic activity. It is indeed stimulating that a large segment of the population could recover from the financial doldrums of the past few years and actually prosper economically. We at NETWORK believe that all people should be financially secure and that financial stability is the best way to ensure that all families can provide independently for their needs.

According to Generation Progress (a relatively new non-profit organization based at CAP which advocates for progressive political and social policy on behalf of young people), the cost of college has increased 1,120% over the past 30 years, drastically outpacing inflation, even though some form of higher education has become increasingly necessary for employment. Part of the increase in tuition is due to a disinvestment in higher education by strapped state governments. As college costs rise, so does the average amount of money that students, who are not wealthy, are forced to borrow. Today, student loan debt is second in size only to mortgage debt, but student loan borrowers are more severely delinquent (1 in 10) than any other debtors.

Who are these student-loan borrowers? They come especially from low and middle-income families, are often people of color, and are all ages: young, older and old.

Education debt has a greater impact on low-income families than other American families. According to Pew Research on Social Trends, borrowers in the lowest fifth of households faced student-loan debt that averaged 24% of their household income, compared to all households where student debt equaled just 6%. Because of rising college costs, a family in the lowest quintile (average income around $18,000 per year) would have to pay more than 70% of the family income to cover college costs, even after accounting for grant aid. This is a significant reason why so few low-income students apply to college, and this situation contributes to the shrinking economic diversity at colleges and universities.

Borrowers from middle-income families have been taking on increasing amounts of student debt, since the incomes for these families have fallen about 19% since 2007 while college tuition has skyrocketed. We know the middle class is shrinking and student debt is keeping borrowers from reaching it. As a matter of fact, this debt will cripple the core of the nation unless lawmakers reduce this burden, which acts as a tax on future wages and postpones the ability of young people to settle down, buy a home or start a family.

Let’s consider borrowers of color. They:

• are more likely to depend on financial aid to attend college, since their families generally have less equity than their white counterparts
• depend more on private loans (about a 16% increase among black and 16% increase among Hispanic borrowers, just from 2003 to 2008), which usually have twice the interest rate of federal loans, thus increasing their vulnerability to default
• have higher youth unemployment rates – 20.7% for African-Americans and 14.4% for Latinos
• are more likely to enroll in for-profit schools, which have higher tuition and account for nearly half of student loan debt, according to the Federal Reserve Bank of St. Louis
• receive more than half of Pell Grants, which have not kept pace with the cost of college and force borrowers to take out more in education loans

Student loan debt has a significant impact on senior borrowers, too. Seniors have often co-signed loans with their children or grandchildren to help them afford the cost of rising tuition. By 2011 90% of borrowers had a co-signer, up from 55% in 2005. Or they, themselves have gone back to school to become more competitive in their fields. Senior citizens still owe millions of dollars in education debt; the number of education loan borrowers over the age of 60 has tripled since 2005, according to Generation Progress. Defaulting on debt affects seniors more than any other age group because they are often living on fixed incomes due to retirement and often their social security checks are garnished for debt collectors who harass them for debts that may be decades old.

As if the facts stated above are not enough to stir your compassion, there are some additional facts to consider. According to the May 5, 2014 issue of U.S. News and World Report, the data surrounding how many people struggle with student debt is only measured through defaults and does not even include data on graduate loans or other types of loans (e.g., federal Perkins loans) of which there are thousands. The default rate includes only borrowers who skip payments for nine months, but does not include those who miss payments for three months and are reported to a credit bureau. A damaged credit report due to delinquency will make it harder for these borrowers to buy a home or car or even get a job. If we include all student-loan borrowers who have had major problems with their loans, for one reason or another, we are talking about several million people who have restricted purchasing power as consumers and struggle to support themselves and/or their families. Is it any wonder that our economy is sluggish or that inequality is a growing issue?

Another serious concern is that students taking out college loans for the next school year will face interest rates of about 4.66%, almost a percentage point higher than last year. That is because the rates for student loans are set by the rates of the most recent 10-year Treasury bond auction. And since the Federal Reserve is continuing to cut its ‘quantitative easing’ purchases each month, interest rates on Treasury bonds will cause student-loan interest rates to continue to rise, thus increasing the debt burden of all who take out loans.

As we have seen, student loan debt is a serious drag on the economy and adds to the number of Americans who are prevented from full participation in the economic life of our nation. Allowing for the refinancing of student loans is a pragmatic policy that would not only provide relief for millions of borrowers, but also would generate economic growth and add stability to family life.

NETWORK does not believe, as many cynics do, that the Warren bill is just a part of the political messaging rampant in this mid-term election year and is intended merely to bolster the argument of economic inequality. We believe it is critical for Congress to move quickly to support Senator Warren’s bill and its counterpart in the House while interest rates are still near historic lows. We also believe it will be a step in eradicating a form of economic injustice.

Allen Sloan, a business writer for the Washington Post and hardly a flaming liberal, wrote a long blistering attack in the Post‘s July 13 edition on the U.S. stampede of “corporate inversions.” One might expect a liberal organization to write such an article, but not Allen Sloan!

“Corporate inversion,” according to ThinkProgress is a “loophole in the tax code [that]essentially allows a corporation to renounce its corporate citizenship in the United States, move its address overseas by merging with a foreign company, and dodge its U.S. tax obligations by paying most of its taxes to a foreign government with lower tax rates than the U.S.” The process takes place primarily on paper, since most corporate operations (often including corporate headquarters) remain here.

How does Allen Sloan define corporate inversions? In part, he says, “…companies that have deserted our country to avoid paying taxes but expect to keep receiving the full benefits that being American confers, and for which everyone else is paying.” And these benefits are not trivial. They include access to developed infrastructure, a highly educated workforce, the best universities in the world, first-class R&D sponsored by the government and universities, and peaceful, democratic conditions. Sloan goes on to say that “being legal isn’t the same as being right.” After reading his article, everyone should be angry!

Let’s consider some of the major aspects of corporate inversion. First, under U.S. tax law, the U.S. firm must have no more than 79% of its shareholders American, which means that the corporation will seek a smaller foreign firm with which to merge. In other words, in order to be considered a foreign corporation, only 20% of the shareholders need to be foreign. Senator Carl Levin (D-MI) and Representative Sander Levin (D-MI) introduced legislation this past May (that has been languishing in Congress) proposing that the number of foreign shareholders must be at least 50% of the total, a much more difficult goal for an American firm to achieve.

Secondly, in many cases very little economic activity is moved from the U.S. to the new home country, and the firm may continue to be listed on the U.S. stock exchange; yet, it is highly likely that future job expansion and investment will occur abroad rather than in the U.S. This fact is the source of frustration for most members of Congress.

Thirdly, the corporate tax bill of the new corporation will be lower, depending on the country in which the new firm is incorporated — many are incorporated in the UK where the tax rate is 20% or in Ireland, where it is 12.5%. The U.S. statutory tax rate for corporations is 35%, but given all the loopholes and deductions, the effective rate is much lower, even non-existent in some cases. U.S. stockholders, however, will continue to pay capital gains taxes (except tax-exempt shareholders, such as 401(k) plans and IRAs).

The new corporations would still be required to pay U.S. taxes on their U.S. operations, but many corporations have become expert at using profit-shifting techniques to book profits offshore for tax purposes, even though the proceeds result from activity and sales in the U.S.

Sixty companies have now either already succeeded in their efforts of corporate inversion or are in various stages of the process, and many more are planning to join the stampede. Congress’s Joint Committee on Taxation projects that failing to limit inversions now will cost the Treasury an additional $19.5 billion over 10 years — a figure that seems abnormally low, according to Sloan’s article in Fortune on July 12. But even $2 billion a year could usefully shore up many safety-net programs that have been decimated.

Many of the companies that have succeeded or are attempting corporate inversions are well-known corporations – Carnival Cruises, Medtronic, Walgreen, Pfizer (recently walked away from a smaller firm, but may try again), Mylan (whose CEO is Senator Joe Manchin’s (D-WV) daughter). Many others are not household names, but add to the deluge of lost taxes.

A recent article in the New York Times (July 14, 2014) explains why healthcare companies are part of the inversion wave that is sweeping corporate America. They are already a leader in mergers and acquisitions (it’s easier to buy smaller companies and acquire new drugs than to develop them); there’s an abundance of drug makers that are suitable targets; and most drug companies are already global players and have substantial international profits they are eager to use. Healthcare companies are the most active inverters, with an estimated $328.8 billion in deals announced through July 10.

Most analysts and members of Congress agree that the problem is our dysfunctional corporate tax system, but there is little agreement on the solution. Several bills have been introduced, primarily by Democrats, over the past several months (that of the Levin brothers was mentioned earlier), the focus of which would allow corporations to invert only if they truly become a foreign corporation.

It should be remembered that Congress enacted legislation in 2004 to deter corporate inversions, but these rules were far too weak to have the intended effect, as the recent increase demonstrates. Whatever legislation is finally passed, it should be straightforward and strong enough to deter companies from abusing the tax code by incorporating in a low tax country, until the corporate tax code can be overhauled.

Senate Democrats are planning to take action on corporate inversions during the week of July 21 by taking up S. 2569, being dubbed as the “bring jobs home” bill, a proposal by Senators John Walsh (D-MT) and Debbie Stabenow (D-MI) to cut off tax breaks for corporate expenses related to moving operations offshore. It is unclear where other proposals introduced earlier stand in relation to this bill and whether certain aspects of these bills would be included or bypassed, although Stabenow said she and other Democrats would press for votes on some measures included in other bills.

It appears that the Walsh-Stabenow bill has broad support from Democrats, but none of the numerous cosponsors is a Republican, which does not bode well for passage. One hopes that this flurry of activity is not merely laying the groundwork for an election-year fight about jobs, but that Democrats are serious about ending a real travesty of justice. As Sander Levin (D-MI) said upon hearing about another U.S. healthcare company’s successful inversion, “Action on this critical issue cannot wait for comprehensive tax reform.”

Republicans have indicated their opposition to the bill, not only because of an absence of full offsets, but also because they claim that the best way to deal with foreign outsourcing and corporate inversions is through a complete tax overhaul that would lower the current 35% corporate tax rate. Even some Democrats, including Senator Ron Wyden (D-OR), Finance Chairman, express concerns about the impact of this tax proposal on the ability of Congress to tackle comprehensive tax reform.

Other Republicans are supporting a temporary tax holiday for “repatriated” foreign profits, which would allow multinationals to bring home their foreign profits and pay taxes on them at a much-lower-than-usual tax rate. It should be noted, according to the Center of Budget and Policy Priorities (CBPP), that this measure was already tried in 2004-05 and failed miserably. Independent studies found that corporations used the profits not to invest and create jobs in the U.S., but instead for stock buybacks and larger dividends for stockholders. Some of the companies that repatriated the largest amounts of money then laid off thousands of U.S. workers.

But there are some fresh signs of hope. Jack Lew, Secretary of the Treasury, in a letter to Congress requested a “new sense of economic patriotism” and not only received a signal of support for the bill from Wyden (who had formerly given his confreres a rather chilly response), but aroused a key Republican, Senator Orrin Hatch (R-UT), who said he was open to a short-term fix for offshore corporate tax deals, the first Republican to show any support for the bill.

Given the current uptick in corporate inversions, waiting for corporate tax reform will only invite more tax avoidance-driven company exits from America. There’s far too much at stake in the short-term to allow this behavior to continue, especially when companies themselves are keeping up with this latest fad.

On Thursday, July 24, the House of Representatives will vote on a bill significantly revising the Child Tax Credit (CTC).

The bill would permanently extend the credit higher up the income scale making it available to households with much higher six-digit incomes while the benefit to low-income families (expiring in 2017) will not be renewed. More affluent households would benefit more than the millions of low-income working families!

NETWORK stands in strong opposition to this bill (H.R. 4935, the Child Tax Credit Improvement Act of 2014). The CTC, as revised in 2009, should be made permanent, with the indexing suggested in the House bill. But, the less just aspects need to be eliminated.

To date, the CTC has been a major contributor to keeping millions of families out of poverty, a great example of tax policy benefiting the 100%. One portion the credit in particular, a refundable credit for working families with limited earnings, has helped lift families from poverty. Currently, the Child Tax Credit is worth up to $1000 per eligible child, the amount varies by income, with a phase out beginning at income over $110,000 in the filing year. A household must have a reportable income of at least $3000 in order to be eligible. For low incomes, over the $3000, the credit is refundable.

Here’s an example of what this bill would do:

A married couple with two children making $160,000 would receive an additional tax cut of $2200. But, a single mother with two children, receiving minimum wage, earns just $14,500 a year and would lose $1,725 as her CTC would disappear altogether.

Earlier today, this letter was sent up to the House expressing our views on the bill:

Dear Speaker Boehner:

Tomorrow, the House will take up consideration of H.R. 4935, the Child Tax Credit Improvement Act of 2014 (CTC), which modifies the current credit and makes it permanent. Catholic teaching has long promoted support for families and we believe tax policy can be used to promote the common good. We are deeply concerned, however, about two fatal flaws in the bill and therefore cannot support the bill in its current form. We respectfully ask that you oppose this bill and seek to improve it by adding provisions that permanently protect all families, particularly those families living in poverty.

First, the bill fails to make permanent a key CTC improvement for working families earning as little as $3,000 per year, slated to expire at the end of 2017, while permanently extending it to higher income families. Extending a permanent CTC that helps wealthy families, while failing to make permanent the credit for those living in poverty is unjust. This failure would have a devastating impact on more than 2 million families that are already struggling to makes ends meet and who need the credit the most.

Second, the bill was recently modified to deny the credit to parents who file with an IRS-issued Individual Tax Identification Number (ITIN) rather than a Social Security number thus harming children from some of the poorest working families in America. Legal residents and undocumented workers who file their taxes using ITINs pay billions of dollars in taxes — payroll, Social Security and Medicare – and yet are not eligible for benefits. Cutting them off from the CTC will hurt up to 5.5 million children, 4.5 million of whom are U.S. citizens. These taxpaying families — like all families — deserve support and an opportunity to succeed.

A permanent child tax credit must address the needs of all families, but particularly the ones who earn the least. As you vote tomorrow, please vote no for the Child Tax Credit Improvement Act as proposed. We look forward to working with you to develop a credit that promotes the common good for 100% of America’s families.

Economists generally agree that temporary tax policies are ineffective for economic growth, yet Congress has consistently extended a host of tax provisions that are known collectively as “tax extenders” in lieu of genuine tax reform.

A study by economists at George Mason University entitled “The Economic Costs of Tax Policy Uncertainty” shows that policy uncertainty itself has negative implications for the economy by reducing investment, consumption, employment and growth.

The study maintains that regular renewal of tax breaks is nothing more than a vehicle for politicians to acquire financial and political support from special interests in exchange for tax handouts. The only employment achieved is a growing supply of lobbying jobs to protect various industries’ tax privileges. So the primary beneficiaries of “tax extenders” are private interests, especially high-income taxpayers and various corporations (e.g., racetrack builders, the rum industry in Puerto Rico, and the Virgin Islands) and lobbyists.

The Economic Policy Institute (EPI) points out that the four largest “tax extenders” are:

1. The research and development tax credit
2. The renewable electricity production credit
3. The active financing exception, which allows financial services firms and manufacturers to defer U.S. taxes on certain types of income earned overseas
4. The deduction for state and local taxes

Combined, these account for 60% of the value of the most recently passed extender package. EPI says that these “tax extenders” are both regressive and inefficient because they provide benefits to individuals and businesses that act in ways they would have acted even without the tax provision. Furthermore, the “temporary” classification of these and several other tax provisions is deceptive because they have been routinely extended for years.

Unless the “temporary” tax provisions are extended by December 31, income taxes for individuals and businesses will be affected for 2014. Politico reports that powerful conservative groups funded by the Koch brothers (e.g. Americans for Prosperity, Heritage Action for America) as well as many House Republicans want the GOP to capitalize on their election victory by killing some of the “tax extenders,” such as one subsidizing the wind energy industry. Some Republicans are threatening a refusal to pass any “tax extenders” bill until at least January when they take over both houses of Congress. Representative Dave Camp (R-MI), Chairman of the House Ways and Means Committee during the lame duck session, along with several other Republicans, favor comprehensive tax reform with no temporary extenders.

While it is true that many of the 50+ “tax extenders” provide tax relief for certain businesses and high-income taxpayers, provide some benefits for ordinary taxpayers, such as a deduction for sales taxes and another offering a break to those who have had mortgage debt forgiven in the aftermath of the housing crisis. For these and other reasons, Democrats in both houses of Congress want to make only minimal changes in the bills and extend all tax provisions for two years, whereas Republicans want to permanently renew a few tax provisions and end tax breaks for most, including the wind credit, and prepare for major tax reform when they will control Congress in January 2015.

At the present time (November 20, 2014) top Republicans and Democrats on the Senate Finance and House Ways and Means committees are in negotiations to forge a deal on the “tax extenders.” Senator Ron Wyden (D-OR), current chairman of the Senate Finance Committee, told Politico this week that he was pushing for the bill introduced by his committee earlier this year (but never passed) that continues almost all of the “tax extenders” for two years (through 2015), but was willing to consider making some of the tax provisions permanent, specifically mentioning the R&D credit. He conceded, however, that negotiations are in a preliminary stage and have a long way to go. Like Dave Camp, Wyden wouldn’t rule out any possibility for the tax provision package at this time.

EPI says that the R&D credit is based on the widely accepted premise that some private research may not just improve the quality and lower the prices of goods and services produced by the firm itself, but may have “spillover effects” by increasing productivity growth across an entire industry and even the entire economy. The R&D credit is designed to offset only the costs of a company’s new research, not its entire research budget. Despite these good qualities, the current structure of the R&D credit is not flawless, as Wyden would quickly point out, especially the lack of data collection to show that the R&D credit is actually incentivizing R&D spending. There may not be time in this session of Congress to solve this problem and others that exist in the structure of the R&D credit.

Time is of the essence, as IRS Commissioner John Koskinen warned lawmakers last week that failure to address the tax provisions soon – in early December – could greatly complicate the tax filing season and delay tax refunds.

Another key fact about “tax extenders” that cannot be overlooked is their cost to the Treasury. Americans for Tax Fairness (ATF), basing their calculations on those of the Congressional Budget Office (CBO), has estimated that the two-year cost of extending these tax breaks would amount to $142.4 billion; a permanent extension (based on a 10-year cost) would amount to $691 .1 billion. By far, business tax provisions predominate among the “tax extenders.” For a two-year extension they constitute 78.1% of the costs; energy, individual, charitable and community assistance provisions constitute the remaining 21.9%.

As Congress debates whether these tax provisions, all of which assist the upper three quintiles of Americans, are worth the cost, we at NETWORK believe that policymakers must also address the needs of individuals and families in the lower two quintiles, who are struggling on a daily basis to make ends meet. Specifically, it is critically important to extend two credits that will soon expire – the Earned Income Tax Credit (EITC) and the refundable Child Tax Credit (CTC). Let’s not talk about the permanence of tax cuts without considering the permanence of these two significant credits.

Economists agree that the EITC and the CTC continue to be the most effective anti-poverty programs developed in this country. Together they keep about 16 million Americans, including more than 5 million children, out of poverty. As Sister Simone Campbell’s letter to Chairman Wyden, dated November 13, 2014, states: “[A]nother 50 million Americans, including 31 million children, would lose part or all of their Child Tax Credit or Earned Income Tax Credit if it is not extended. These credits strengthen opportunity for workers who are struggling to get by and help families become more economically secure. They – along with a strong minimum wage – have the power to raise the living standards and lift millions of working Americans out of poverty.”

EITC and CTC help create a more equitable and secure society, promote the common good, and lay the groundwork for a truly healthy economy. Only by ensuring that the 100% are strengthened will we be able to create strong communities that can resolve the crises that beset our society from time to time.

Both the EITC and the CTC encourage and reward work and the Center on Budget and Policy Priorities (CBPP) reminds us that there is growing evidence that income from these credits leads to improved school performance, higher college enrollment, and increased earnings in adulthood. Both credits have consistently enjoyed bipartisan support in Congress, and making them permanent should be a congressional priority. As Pope Francis wrote in The Joy of the Gospel “the dignity of each human person and the pursuit of the common good are concerns which ought to shape all economic policies” – and that includes tax policies!

Catholic Social Teaching is clear that all people have the right to live in human dignity, which for many is not possible without tax incentives since payroll taxes are taking a larger and larger bite out of their meager wages.

Next to Social Security, the EITC and the Child Tax Credit lift more people out of poverty than any other federal program. However, both programs will expire in 2017 if they are not extended. We believe that expanding the EITC and the Child Tax Credit for low-income workers themselves as well as for their families is a matter of basic tax fairness.

Economists across the political spectrum agree that the EITC has been one of the most effective anti-poverty programs we have. Together with the refundable Child Tax Credit, it helps keep about 10 million Americans, including more than 5 million children, out of poverty. There is also a consensus that making these programs permanent as well as expanding the EITC would strengthen opportunity for workers who are struggling to get by and help families become more economically secure. These tax credits have the power to raise living standards and lift millions of working Americans out of poverty.

Working Families Tax Relief Act

While we wait for a Republican proposal, we want to call attention to the “Working Families Tax Relief Act,” which has been introduced by Democrats. Senator Sherrod Brown (D-OH), the ranking Democrat on the Banking Committee, cosponsored this proposal with Senator Dick Durbin (D-IL). The measure would expand the EITC and Child Tax Credit to make permanent the expansion of credits that took effect in 2009, would expand the EITC for “childless workers” (more on this below), would extend both programs indefinitely, would index the Child Tax Credit to inflation and make it easier for qualified Americans to claim the EITC.

Senator Brown said, “The Earned Income Tax Credit and the Child Tax Credit lift families out of poverty, provide an incentive to work, and put real money back in the pockets of working Americans. That’s why expanding and strengthening these tax credits is so important. To reform our tax code, we must start in the homes of working Americans — not in corporate boardrooms.”

Reps. Richard Neal (D-MA) and Rosa DeLauro (D-CT) are co-sponsoring the House version of the bill.

Other Proposals

The other proposals led by the Senate leadership include “The 21st Century Worker Tax Cut Act,” which introduces a new tax credit worth up to $1000 for families in which both parents work; “Helping Working Families Afford Child Care Act,” which would increase the size of the typical credit for child and dependent care from the current $600 to $2800 (but could rise as high as $8000) for most middle-income families; the “American Opportunity Tax Credit,” which gives families up to $3000 credit for college tuition and includes families earning up to $200,000.

What would happen in 2018 if the EITC and Child Tax Credit provisions expire in 2017? It would have a dire effect on the economy as a whole and on working families in particular. A study released last month by the Center on Budget and Policy Priorities (CBPP) found that more than 16 million people in low-income working families, including 8 million children, would fall into — or deeper into — poverty; and some 50 million Americans, including 25 million children, would face substantial cuts.

History and Effectiveness of the EITC and Child Tax Credit

The Economic Policy Institute (EPI) produced a major study of both the EITC and Child Tax Credit in September 2013, from which much of the following information is gleaned. Because of the nature of the study, the findings are still timely.

The EITC was first signed into law in the 1970s by President Ford and was considered an anti-poverty program and an alternative to welfare because it incentivized work. The program was expanded by President George W. Bush in 2008 and by President Obama in 2009 as part of the American Recovery and Reinvestment Act (ARRA). Under ARRA, benefits for families with more than two children were boosted and marriage penalties were reduced (some EITC for certain couples were no longer lost when they married).

Originally in the 1970s, the EITC was intended to offset the Social Security payroll taxes for low-income workers as well as rising food and energy prices, but no longer covers those costs.

Let’s be sure we understand how the EITC works. The EITC is work-oriented in that the amount of the tax credit is based on earnings from wages and salaries or self-employment income. The amount of the credit increases as earnings increase, but reaches a plateau, and then falls as earnings increase. For example, for a couple with two children, the credit rate is 40% of the first $13,090 in earnings, with a maximum credit of $5,236 if earnings reach $22,300. Over that amount the credit rate drops substantially until it reaches zero for taxpayers over $47,162.

Low-income workers with no children and noncustodial parents are also eligible for the EITC, but the maximum credit is just a small fraction of that for families with children and often too complicated for potential recipients to bother with.

The Child Tax Credit was enacted as part of the “Taxpayer Relief Act of 1997.” The origin of the credit can be traced to a recommendation for a $1000-per-child tax credit by the 1990 National Commission on Children, but was substantially less generous in the original law. It was eventually increased to $1000 per child as part of the 2001 and 2003 Bush tax cuts. The ARRA expansion of the Child Tax Credit substantially lowered the threshold for earnings to qualify for the tax credit.

The Child Tax Credit allows a nonrefundable credit against income taxes of $1000 per qualifying child under age 17. Unlike the EITC, the Child Tax Credit is not targeted to just lower-income taxpayers. A couple with two qualifying children can receive the tax credit with adjusted gross income levels of $150,000 (those levels are in the top 10% of the income distribution).

The EPI summarizes the major findings on the effectiveness of the EITC and Child Tax Credit as follows:

• Both the EITC and Child Tax Credit were initially proposed, supported and expanded by Republican lawmakers with broad bipartisan support
• Both the EITC and Child Tax Credit fail one of the criteria of evaluating tax provisions: simplicity and convenience. Claiming the tax credits can be complicated and involves filing many forms, which leads to errors of both over-and under- payment
• The EITC appears to increase the labor force participation of single mothers, yet the high marginal tax rates associated with its phase-out range do not appear to have a significant work disincentive effect
• The EITC is the most progressive tax expenditure in the income tax code
• The EITC reduces poverty significantly, with children constituting half of the individuals it lifts out of poverty
• The EITC and Child Tax Credit are effective in increasing after-tax income of its recipients and reducing income inequality.

A recent paper (February 20, 2015) by the Center on Budget and Policy Priorities focuses attention on low-income “childless workers” — adults without children and non-custodial parents — who receive little or nothing from the EITC. At the present time, this is the only group whose income and payroll taxes together either push them into poverty or deeper into poverty. CBPP estimates that there are over 7 million people in this category.

The Brown-Durbin bill would substantially strengthen the EITC for this group by lowering the eligibility age to 21, raising the maximum amount of credit offered and increasing the phase in/out rates.

Based on studies done by several economists and psychologists, the CBPP paper maintains that strengthening the EITC for “childless workers” would have a number of social as well as economic benefits, including the following:

• would increase labor force participation among low-skilled childless workers
• may increase their earnings, and thus their marriage rates and stability
• could help reduce crime and incarceration rates among the young
• would help their children (many are noncustodial parents) financially and would assist them in serving as role models for their children

A Matter of Fairness

Just as those in Congress who believe firmly that the EITC and the Child Tax Credit should be extended beyond 2017 and expanded in scope are beginning this journey now, we, at NETWORK strongly encourage all advocates to begin planning effective ways to support this effort. As is clear from examining a history of these two programs, extension has always garnered bipartisan support. And there is little controversy about the effectiveness of either the EITC or the Child Tax Credit.

On April 16, the House voted (H.R. 1105) to repeal the estate tax. The vote (240-179) broke down largely on partisan lines. NETWORK actively opposed the bill.

Background

An estate may consist of property, stocks or any combination of assets that a person owns. The Center for Effective Government (CEG), in an April 15 article, calls this move “alarming.”

After clarifying that the estate tax affects a miniscule proportion of Americans – only .2%, according to the research of the Center on Budget and Policy Priorities (CBPP) — the CEG makes very clear that repeal would exacerbate wealth inequality in this country. That is because it would result in approximately $269 billion (a figure derived from the Joint Committee on Taxation – JCT) in less funding over the next decade for programs in education, healthcare, child nutrition, etc. These are programs that help average — low-income and middle-income — people. This situation is especially stark in the context of the House budget, which already proposes to cut health reform, Medicaid, the Supplemental Nutrition Assistance Program (SNAP) and Pell Grants.

Only about two out of every 1,000 people who inherit an estate owe any taxes because the amount of the estate’s worth has increased from $650,000 in 2001 to $5.43 million per person ($10.86 million for a couple) in 2015 before the tax is triggered. As the CEG article notes, for “99.8% of Americans, death is a time when taxes are forgiven, not owed.”

The Tax Policy Center (TPC) estimates that only about 20 small business and farm estates owed any estate tax in 2013, and those owners paid only an average of 4.9% of their value in taxes (TCP Table T13-0020, quoted in a CBPP report entitled “Eliminating Estate tax on Inherited Wealth Would Increase Deficits and Inequality” issued on April 13, 2015).

Examples

Following up on this issue of the number of taxable estates, let’s compare a few random years. In 1977, 139,000 estates had to pay the estate tax (the estate tax has been assessed since 1916); in the year 2000, about 52,000 estates filed for the estate tax; whereas in 2013 only 4,687 filed. An incredible diminution over time!

If owners’ wills set up trust funds for heirs, and, given the fact that capital gains that normally accrue on the appreciation of assets are only realized when the asset is sold, then the normal capital gains tax would not apply if the estate tax is repealed. According to CBPP, “Unrealized capital gains account for a significant proportion of the assets held by estates, ranging from 32% for estates worth between $5 million and $10 million to about 55% for estates worth more than $100 million.”

An even more consequential reason that repeal of the estate tax is unsettling is that it would bestow a tax windfall averaging more than $3 million apiece on those who are often already extremely wealthy, according to CBPP calculations.  That calculation is based on the fact that roughly 5,400 estates nationwide would face the estate tax in 2016. However, one must keep in mind that the 1,336 estates worth $20 million or more would receive a tax windfall averaging $10 million and the 318 estates worth $50 million or more would receive tax benefits averaging more than $20 million each. Since large inheritances play a substantial role in wealth concentration, especially at the top of the wealth pyramid, they are a prominent deterrent to economic mobility and belong in the category of “unearned income.”

While estate taxes constitute a tiny part of the federal budget — $269 billion between 2016 and 2025 – nevertheless, an April 15 online article  by “Think Progress” notes that this amount would be sufficient to fund the Food and Drug Administration, the Centers for Disease Control and the Environmental Protection Agency combined. Or more to the point, as the April 15 online edition of the Huffington Post  elaborates, $75 billion would let every low-to-moderate-income four-year-old attend preschool; or $209 billion would be enough to send 9 million striving Americans to a community college; or $89 billion would keep college affordable for millions more by reversing proposed budget cuts to Pell Grants; or ensure there’s enough food on the table for children, seniors, veterans and their families by restoring $125 billion in cuts to food stamps made in the House and Senate budgets.

Polls have long suggested that most people believe the wealthiest Americans don’t pay their fair share of taxes. Senator Debbie Stabenow (D-MI) said with a laugh on April 14, “I guess when it comes to helping the wealthiest people in the country, it’s never enough.”

House Ways and Means Committee Chairman Paul Ryan (R-WI) claimed that the estate tax is “absolutely devastating” for family farms, and he said that the repeal would remove “an additional layer of taxation” from assets that had already been taxed. An online Washington Post article on April 14 rebuts Ryan by indicating that only 120 small businesses and farms nationwide were subject to the estate tax in 2013. And because of all kinds of discounts and other breaks, such as low valuation rules and delayed tax payments, few heirs were hurt in any meaningful way. Furthermore, Congress has repeatedly cut the tax rate and increased exemptions. And there is no “double taxation.” Even the Americans for Tax Fairness conceded that 55% of the value of estates worth more than $100 million had never been taxed.

The Department of Agriculture estimates that with the exemptions, only .6% of American farms would have to pay an estate tax – more might file, but would owe no taxes. Even Senator John Thune (R-SD) and his staff could not identify any farms that were forced to be sold because of the estate tax. They indicated that in a few cases some new owners had to sell some acreage to pay the tax, but even in those cases this occurred because land prices had soared in certain areas.

We Must Not Increase Inequality

At a time when income inequality is one of our most vexing problems, the wealthiest .2% of Americans who have already become the permanent elite of this country, needs no help from Congress to ensure their status. One can partially rest in the knowledge that the estate tax proposal is unlikely to make it through the Senate or past a presidential veto. President Obama and many other senior Democrats want to expand the estate tax especially by targeting more estates with a higher top rate. On April 15, the online edition of The Hill pointed out that White House officials have reemphasized the president’s proposals to give tax breaks for child care and education and to two-earner families. They are right to conclude that such policies, if passed, would help far more people than the GOP’s estate tax repeal.

Indeed, this latter point is significant. The effort to repeal the estate tax does nothing to promote family stability, respond to the needs of people at the margins, or address the human needs of people. At a time when the gap between the wealthy and those barely able to afford the necessities of life is yawning widely, no one should support the repeal of the estate tax.

NETWORK believes that the accumulation of wealth (or profits) should never take precedence over ensuring adequate resources for all people to lead a dignified life, and that includes meeting the basic needs of the whole person. Giving a very few people who are heirs to a huge estate a tax windfall does not build a relational society based on achieving the common good for all. We are called to act beyond selfishness, to approve an outreach to community that supports the eradication of all injustice no matter what form that takes. And what some call the “repealing the death tax” falls into the category of classism—a major injustice today.