STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - January 07, 2009)
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By Mr. KERRY (for himself and Mr. Rockefeller):
S. 24. A bill to amend the Internal Revenue Code of 1986 to strengthen the earned income tax credit; to the Committee on Finance.
Mr. KERRY. Mr. President, today Senator Rockefeller and I are introducing the Strengthen the Earned Income Tax Credit Act of 2009. Since 1975, the earned income tax credit, EITC, has been an innovative tax credit which helps low-income working families. President Reagan referred to the EITC as ``the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.'' According to the Center on Budget and Policy Priorities, the EITC lifts more children out of poverty than any other government program.
It is time for us to reexamine the EITC and determine where we can strengthen it. Census data and the events of Hurricane Katrina reiterated the fact that there is a group of Americans that are falling behind. The poverty rate for 2007 was 12.5 percent and this is basically the same as the rate for 2006. In 2007, there were 37.3 million living in poverty.
We need to help the low-income workers who struggle day after day trying to make ends meet. They have been left behind in the economic policies of the last 8 years. We need to begin a discussion on how to help those that have been left behind. The EITC is the perfect place to start.
The Strengthen the Earned Income Tax Credit Act of 2009 strengthens the EITC by making the following four changes: reducing the marriage penalty; increasing the credit for families with three or more children; expanding credit amount for individuals with no children; and simplifying the credit.
First, the legislation increases marriage penalty relief and makes it permanent. In the way that the EITC is currently structured, many single individuals that marry find themselves faced with a reduction in their EITC. The tax code should not penalize individuals who marry.
Second, the legislation increases the credit for families with three or more children. Under current law, the credit amount is based on one child or two or more children. This legislation would create a new credit amount based on three or more children. One of the purposes of the EITC is to lift families above the poverty level. Because the EITC adjustment for family size is limited to two children, over time large families will not be kept above the poverty threshold.
Under current law, the maximum EITC for an individual with two or more children is $5,028 and under this legislation, the amount would increase to $5,656 for an individual with three or more children. Increasing the credit amount would make more families eligible for the EITC. Currently, an individual with three children and income at and above $40,295 would not benefit from the credit. Under this legislation, an individual with children and income under $43,276 would benefit from the EITC.
Third, this legislation would increase the credit amount for childless workers. The EITC was designed to help childless workers offset their payroll tax liability. The credit phase-in was set to equal the employee share of the payroll tax, 7.65 percent. However, in reality, the employee bears the burden of both the employee and employer portion of the payroll tax.
For 2008, the EITC will fully offset the employee share of payroll taxes only for childless workers earning less than $5,720. A typical single childless adult will begin to owe Federal income taxes in addition to payroll taxes when his or her income is only $10,655, which is below the poverty line.
The decline in the labor force of single men has been troubling. Boosting the EITC for childless workers could be part of solution for increasing work among this group. Increasing the EITC for families has increased labor rates for single mothers and hopefully, it can do the same for this group.
This legislation doubles the credit rate for individual taxpayers and married taxpayers without children. The credit rate and phase-out rate of 7.65 percent is doubled to 15.3 percent. For 2007, the maximum credit amount for an individual would increase from $457 to $913. The doubling of the phase-out results in taxpayers in the same income range being eligible for the credit. In addition, the legislation would increase the credit phase-out income level from $7,470 to $13,800 for 2009 and $14,500 for 2010.
Under current law, workers under age 25 are ineligible for the childless workers EITC. The Strengthen the Earned Income Tax Credit Act of 2009 would change the age to 21. This age change will provide an incentive for labor for less-educated younger adults.
Fourth, the Strengthen the Earned Income Tax Credit Act of 2009 simplifies the EITC by modifying the abandoned spouse rule, clarifying the qualifying child rules, and repealing the disqualified investment test. Current rules require parents to file a joint tax return to claim the EITC. This can create difficulty for separated parents. If parents are separated and not yet divorced, complex rules govern whether the custodial parent may claim the EITC if a separate return is filed. The custodial parent must be able to claim head-of-household filing status. This test requires that a parent must pay more than half of household expenses from her own earnings, rather than from child support payments or program benefits. Under this legislation, the requirements by permitting a separated parent who lives with for more than six months of the year and also lives apart from his/her spouse for at least the final six months of the year to claim the EITC.
Under current law, two adults who live in the same household with a child may each qualify to claim the child for the EITC, but only one taxpayer may claim the child and the other taxpayer is not eligible to claim the childless worker EITC. Under this legislation, filers who are eligible to claim a child for the EITC but do not do so are eligible to claim the smaller EITC for workers not raising a child. For example, a mother and aunt living in the same house who are both qualified to claim the child would be able to receive the EITC. The one who claims the child would get the larger amount and the other would be eligible for the smaller childless worker credit.
Under current law, low-income filers are ineligible for the EITC if they have investment income such as interest, dividends, capital gains, rent or royalties that exceeds $3,950 a year. Very few EITC claimants have investment income above this level. This income test creates a ``cliff'' because those workers with investment income of $2,951 would be unable to claim any EITC. This provision discourages savings among low- and moderate-income families. Under this legislation, the investment income test would be repealed.
This legislation will help those who most need our help. It will put more money in their pay check. We need to invest in our families and help individuals who want to make a living by working. I urge my colleagues to support an expansion of the EITC.
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