Tax Reform and Wiser Deficit Reduction over Ham-Fisted Sequestration

In releasing his 2016 budget, President Obama declared that he is “not going to accept a budget that locks in sequestration going forward.” The president has instead recommitted his Administration to investment, and has proposed several family-friendly policies—tax reform, early education, childcare, higher education, etc.—intended to boost investment and growth.

The President’s tax credit proposals, in particular, should be popular on Capitol Hill. The efficacies of the Earned Income Tax Credit (EITC) and Child and Dependent Care Tax Credit (CDCTC) are widely recognized, and their incidence is well understood, which makes them two of the least controversial anti-poverty measures available to policy makers.

The Administration proposes to double the Earned Income Tax Credit (EITC) for workers without custodial children, and increase the maximum credit to approximately $1,000. This addresses the tax code’s historic neglect of households without children. WOW estimates that this change would increase the resources of a minimum wage ($7.25 per hour) worker by approximately $475 per year, an effective wage increase of approximately 3%.

The President’s budget would also increase the Child and Dependent Care Tax Credit (CDCTC) for middle-income families. This change would most help parents of young children. Those paying children’s care expenses would be able to claim twice as much as they can currently, as much as $6,000 per child for children five or younger; the credit rate would rise to 50 percent for some families; and the maximum credit rate for middle income families would move from 20 percent to 35 percent. The proposed changes would reduce the taxes of a family with two workers earning $10.10 per hour and two young children by approximately $465 per year.

Importantly, the changes would similarly benefit those earning average 2013 wages for a wide range of professions, such as food prep workers and construction workers, because these and other proposed changes to the tax code are aimed at a large swath of the population which includes the approximate 44% of Americans, the majority of them women, who lack economic security incomes and may be susceptible to financial crisis or poverty.     

While national debt will continue to be a threat, a failure to invest and reinvest can be a larger threat to intermediate- and long-term solvency—just ask the small business owners or homeowners that budget hawks claim to think of every day. The Administration budget’s several prudent investments in workers, future workers, families, infrastructure and defense should become part of a bipartisan commitment to replace ham-fisted sequestration.

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