Our country faces critical challenges. Strengthening our economy and creating jobs are important national priorities. We also need to address our unsustainable budget deficits and debt. Congress has an opportunity to make progress on both of these challenges when it takes up legislation to extend the expiring 2001 tax cuts.
Some policymakers are suggesting that all of the 2001 tax cuts be extended for a year or two. Given the debilitating deficits and debt facing our country, this seems extremely irresponsible and unwarranted. Only the richest 2 percent of Americans would benefit if the rate cuts for upper-income Americans were extended along with the middle-class tax cuts. These Americans have seen their incomes increase the most.
During the recent economic expansion from the end of 2001 to the end of 2007, two-thirds of the nation's total income gain flowed to the top 1 percent of Americans. If Congress made all of the tax cuts permanent, it would reduce revenues by nearly $680 billion over the next 10 years alone (not including interest costs), adding to the long-term risks that growing deficits and debt pose to the economy.
The decision of which tax provisions to extend from the 2001 and 2003 tax bills and the 2009 American Recovery and Reinvestment Act will have far-reaching implications for working families in Utah, our economy and our long-term fiscal security. Congress should extend only policies that support low- and middle-income families and encourage work, while allowing the fiscally irresponsible and unwarranted tax cuts for the wealthiest Americans to expire as scheduled.
Congress made temporary improvements in a number of tax credits that help low- and moderate-income working families as part of last year's Recovery Act. That act expanded the Child Tax Credit, increased the Earned Income Tax Credit for families with three or more children, increased marriage penalty relief under the EITC, and created the new American Opportunity Tax Credit to help families pay for college.
These improvements promote work, are pro-family and are good for the economy. Congress should make these effective policies permanent.
The Recovery Act allowed low-income working families to count more of their earnings below $13,000 in calculating the value of their Child Tax Credit. If Congress fails to continue this policy, families will only be able to count earnings of more than $13,000 starting in 2011. That means a parent working for the minimum wage and raising two kids would see her credit cut from $1,725 to $250. In Utah, approximately 203,000 children would lose some or all of their Child Tax Credit benefits.
Prior to 2009, families with three or more children received the same EITC benefits as those with two children, even though larger families have higher living expenses. The Recovery Act added a third "tier" to the EITC, providing larger benefits to the more than 3 million working families with three or more children. If Congress doesn't extend this provision, 127,000 children in our state will lose some of their EITC benefits.
The Recovery Act also expanded marriage penalty relief in the EITC, reducing the financial penalty some couples receive when they marry by allowing married couples to receive larger benefits.
Nearly 5 million adults and more than 8 million children would lose this benefit if Congress fails to make the improvement permanent.
The Hope Credit, created in 1997, provided a tax subsidy for up to two years of college tuition costs. The Recovery Act renamed it the American Opportunity Tax Credit, made it available to millions of low- and moderate-income students for the first time, and increased its maximum value from $1,800 to $2,500. It also allowed students to claim the credit for four years of education.
Without congressional action, these improvements will expire after 2010 and the credit once again will be inaccessible to the students who need it most.
Congress should make all of these changes permanent to promote work and ensure that parents who work hard to support their families and give their children a decent start in life can achieve a basic standard of living.
is executive director of Voices for Utah Children.