By Mr. KERRY (for himself and Mr. ROCKEFELLER):
S. 467. 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 reintroducing the Strengthen the Earned Income Tax Credit Act of 2011. 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 lifted 6.5 million people, including 3.3 million children, above the poverty line in 2009.
Last Congress, we were successful in making temporary improvements to the EITC by providing marriage penalty relief and increasing the credit rate for families with three or more children. Both of these provisions have been part of our legislation.
It is time for us to reexamine the EITC and determine where we can strengthen it. The Finance Committee of which I am a member has started a series of hearings on tax reform. I believe the tax code should be thoroughly reviewed to see what is working and not working and what can be made simpler. This legislation expands the EITC permanently, but as part of tax reform I would be open to changing the program. However, those currently benefiting from the EITC should not be harmed in tax reform and there should still be tax relief which encourages work and helps low-income families with children.
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 eight 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 2011 strengthens the EITC by making the following changes: makes permanent marriage penalty relief; makes permanent the credit for families with three or more children; expands the credit for individuals with no children; simplifies the credit; and increases the penalty for tax preparers.
The legislation would make the marriage penalty relief included in the American Recovery and Reinvestment Act permanent. Under the American Recovery and Reinvestment Act, the phase-out income level for married taxpayers that file a joint return would be $5,000 higher than the income level for unmarried filers starting in 2009 and in 2010. This level would be indexed for inflation after 2009. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended this provision through 2012. Without this provision, many single individuals that marry find themselves faced with a reduction in their EITC. In Massachusetts, approximately 100,500 children a year benefit from the EITC because of this provision.
Second, the legislation makes permanent the credit for families with three or more children. Under prior law, the credit amount is based on one child or two or more children. The American Recovery and Reinvestment Act created a third child category for 2009 and 2010 and Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended this provision through 2012. This change benefits approximately 116,000 children a year in Massachusetts.
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. 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. These changes will result in a full time worker receiving the minimum wage to be eligible for the maximum earned income credit amount.
This legislation doubles the credit rate for individual taxpayer 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 $929. In addition, the legislation would increase the credit phase-out income level from $7,590 to $12,690 for individuals and from $12,670 to $17,770 for married couples. This increase is indexed for inflation and includes the marriage penalty relief. Under current law, workers under age 25 are ineligible for the childless workers EITC. The Strengthen the Earned Income Tax Credit Act of 2011 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 2011 simplifies the EITC by modifying the abandoned spouse rule, clarifying the qualifying child rules, and repealing the disqualified investment test.
Finally, the legislation includes a provision which increases the penalty imposed on paid preparers who fail to comply with EITC due diligence requirements from $100 to $500. Unfortunately, about a quarter of EITC returns include errors and more than a majority of EITC returns are prepared by a preparer. This should help ensure that preparers comply with the due diligence requirements.
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.