On the heels of Tax Day 2013, U.S. Senators Sherrod Brown (D-OH) and Dick Durbin (D-ILL) introduced legislation today that would permanently enhance critical refundable tax credits that help keep millions of working families out of poverty. They were joined in cosigning the bill with Senate Finance Committee Chair Max Baucus (D-MT). In total, 27 members of Congress are co-signers, including 10 from the Senate Finance Committee. The Working Families Tax Relief Act of 2013 makes permanent provisions of the American Tax Payer Relief Act that are set to expire after only five years, and strengthens and expands the eligibility of the Earned Income Tax Credit (EITC) and enhance the Child Tax Credit (CTC).
"This is about ensuring that Americans who work hard and play by the rules can take home more of their pay each month while taking care of their children," Brown said. "Enhancing the earned income tax credit should be a bipartisan goal, as President Reagan called EITC the most effective tool in fighting poverty. We need to reward Americans who work hard and play by the rules and ensure that they can work and continue to take care of their families. I'm glad to be joined by Senate Finance Committee Chair Max Baucus and eight other members of the committee in introducing this legislation. Their support is a testament to the bill's significance and increases its likelihood for passage."
"This bill is pro-family, pro-work legislation that would permanently extend critical refundable tax credit provisions that have helped lift millions of working families out of poverty," Durbin said. "The Child Tax Credit and the Earned Income Tax Credit encourage work, help families make ends meet, and lead to healthier and better educated children. I look forward to working with Senator Brown and many of my colleagues to ensure that these critical provisions are included in tax reform."
The EITC is a refundable tax credit that encourages work, helps families make ends meet, and leads to healthier, better educated children. In 2012, more than 27 million taxpayers received nearly $62 billion in EITC benefits. In 2011, according to the Internal Revenue Service (IRS), the EITC lifted 6.6 million Americans out of poverty, 3.1 million of whom were children -- with the average EITC family claiming an average of $2,200. But in contrast to the EITC for working families with children, the EITC for workers without children remains extremely small -- too small even to fully offset federal taxes for workers at the poverty line. Under current law, a childless adult or noncustodial parent working full-time at the minimum wage is ineligible to receive any EITC benefits. Such an individual would receive the maximum EITC if he or she had children. As a result, low-wage workers not raising minor children are the only Americans taxed into poverty.
To fix this problem and help American taxpayers save more money, the Working Families Tax Relief Act of 2013 would.
Make permanent enhancements to the Earned Income Tax Credit: Working families with two or more children qualify for an EITC equal to 40 percent of the family's first $12,570 of income. The Recovery Act increased the EITC to 45 percent for families with three or more children, and the bipartisan agreement to avert the fiscal cliff extended these reforms for five additional years, through 2017. The EITC has a long history of bipartisan support dating back to its creation in 1975 and its expansion in the bipartisan 1986 Tax Reform Act. According to recent estimates, allowing the expanded EITC to expire would increase taxes on 6.5 million families with income below $50,000.
Make permanent enhancements to the Child Tax Credit: The CTC allows a family to reduce federal income tax liability by up to $1,000 per child. CTC became public law in 1997 through a bipartisan agreement. The 2001 "Bush" Tax Cuts began a phased in increase of the credit from $500 - $1,000 and an increase in the refundable portion of the bill. The Recovery Act reduced the salary threshold for claiming the refundable portion of the credit to income above $3,000. An analysis of Census data showed that these provisions lifted 900,000 people above the poverty line in 2011. According to recent estimates, letting the expanded CTC expire would increase taxes on 12 million families who would see the size of their CTC credit shrink, and five million families would no longer be eligible for the credit at all.
Strengthen the Earned Income Tax Credit: The legislation would expand access to the credit, allowing a full time worker receiving the minimum credit to be eligible for the maximum EITC. The bill will also make the credit available to workers without children.
Change the Eligibility Age: Under current law only individuals older than 25 and younger than 65 are eligible for the childless component of the EITC. The legislation would make individuals older than 21 and younger than 65 eligible.
Simplify the Earned Income Tax Credit: The legislation would eliminate a major source of inadvertent fraud by simplifying the rules for claiming the EITC. This bill makes it simple for parents to understand who claims a child and for divorced parents to properly file. The bill also simplifies rules that penalize working families from saving and investing their savings.