Congress Faces Choice between Two Tax Options with Vastly Different Effects

Tuesday, October 16, 2012 at 6:00 PM by

3,800 to 1 = Ratio of WI Families Hurt by Tax Credit Changes, Compared to the Estates Benefiting from Estate Tax Cut

 In the next two or three months, Congress will have to choose between two starkly different tax options that have divided the U.S. House and the Senate. It’s a choice that has been overshadowed by other parts of the debate over expiring tax provisions, but it will be a telling vote on legislative priorities.

Lawmakers can extend a tax break for a tiny number of wealthy estates. Or – for about the same amount of money – Congress can continue improvements to two tax credits that encourage work and help millions of people pull themselves out of poverty.

In Wisconsin, the tax break for wealthy estates would benefit only 40 estates a year, according to a new report. In contrast, the improvements to the tax credits would give a boost to 155,000 low- and moderate-income working families in Wisconsin. In other words, the number of Wisconsin families that would be adversely affected by allowing the improvements to the two tax credits to expire is about 3,800 times the number of estates that would benefit by continuing the temporary estate tax reductions that were initiated in 2010.

The House of Representatives has voted to continue the tax break for the biggest estates, while stripping away improvements made in the Recovery Act to the Child Tax Credit (CTC) and federal Earned Income Tax Credit (EITC). The plan proposed by the U.S. Senate and President Obama would exempt 99.7% of estates from tax, while reducing breaks for the very largest estates and keeping important improvements in tax credits for working-class families with children.

Under the House plan, the Child Tax Credit for a single mother who has two children and a minimum wage job would be cut by more than $1,500, or about 90 percent. A married couple with three children and earnings equivalent to the poverty line ($27,713 for a family that size) would lose $1,934 from the combined effect of the reductions in both credits.

The economic effects of the two options are also very different. Independent analysts such as the Congressional Budget Office have rated the improvements in the refundable tax credits for families as having much more “bang for the buck” in boosting the economy than the Bush tax cuts for high-income individuals.

We shouldn’t ask 155,000 Wisconsin families to sacrifice in order to offset the cost of a tax break that benefits a fraction of one percent of the largest estates. For more about how the tax credits can help families provide their children with a brighter future, read the Wisconsin Budget Project’s press release on this topic, or the full report by the Center on Budget and Policy Priorities.

Jon Peacock

Categories: Blog, estate tax, FEDERAL BUDGET & TAXES, Recovery Act, refundable tax credits | Comments Off on Congress Faces Choice between Two Tax Options with Vastly Different Effects

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