Murray: “The 21st Century Worker Tax Cut Act would update our tax code to help today’s families keep more of what they earn.”
Mar 26 2014
(Washington, D.C.) – Today, Senate Budget Committee Chairman Patty Murray (D-WA) introduced the 21st Century Worker Tax Cut Act, a bill that would update the tax code to help today’s workers and families keep more of what they earn. Complementing critical reforms like raising the minimum wage, the 21st Century Worker Tax Cut Act would update the tax code to provide targeted tax cuts designed for today’s workforce. The bill builds on work incentives both Republicans and Democrats agree have been effective, and it is paid for by closing wasteful and inefficient tax loopholes both parties have proposed eliminating.
“As we continue this important debate about how to expand opportunity to those who are struggling, we need to make sure we are giving today’s workforce the best shot at success in today’s economy. We should increase our outdated minimum wage to give millions of workers a raise, and then Democrats and Republicans need to come together to update our tax code, and give today’s struggling workers the tax relief they deserve. The 21st Century Worker Tax Cut Act would be a strong, fiscally responsible step toward that bipartisan goal, and I am hopeful that we can get this done for our workers as quickly as possible,” Murray plans to say in a speech on the Senate floor this morning.
The bill is co-sponsored by Senator Jack Reed (D-RI) and Senator Sherrod Brown (D-OH). Full legislative text here.
21st Century Worker Tax Cut Act
Our workforce has changed a lot over the last few decades, and as we look to expand opportunity to more Americans, we need to focus on finding ways to give today’s workforce the best shot at success in today’s economy.
The 21st Century Worker Tax Cut Act would complement critical reforms like raising the minimum wage by updating our tax code to provide targeted tax cuts designed for today’s workforce. The bill builds on work incentives both Republicans and Democrats agree have been effective, and it is paid for by closing wasteful and inefficient tax loopholes both parties have proposed eliminating.
- A new tax cut that lets two-earner families keep more of what they earn. Thirty years ago, the majority of families with children had only one parent working outside the home. But now, roughly two-thirds of married couples with children rely on the earnings from two workers to make ends meet. However, marriage penalties in the tax code – along with income phase-outs for the Earned Income Tax Credit (EITC) and direct spending programs, and additional costs incurred with both spouses at work (e.g., child care, transportation) – can result in implicit marginal tax rates on struggling families higher than what many of the wealthiest Americans pay. In the worst of cases, these realities can discourage a potential second earner, like a mother considering re-entering the workforce, from returning to her professional career.
The 21st Century Worker Tax Cut Act would make work pay for low- to middle-income families by allowing a 20 percent deduction on a secondary earner’s income. In order to qualify, both spouses must earn income during the year and the couple must have at least one child under the age of 12. Due to child care costs, young working families like these often face some of the highest implicit marginal tax rates on second earners’ income.
Importantly, this new deduction also reduces earned income for purposes of calculating the EITC. This feature is critical to ensuring that low-income, two-earner families who do not owe income tax—because their combined income is too low—and who otherwise would not benefit from the deduction, instead benefit through an enhanced refundable EITC.
The Joint Committee on Taxation (JCT) estimates that, in 2015, this new deduction would benefit 7.3 million two-earner families with an average tax reduction of $700. JCT estimates the average earned income of secondary earners benefiting from the deduction would be $21,900 in that year.
- Boosting the Earned Income Tax Credit for childless workers. In 2013, a single worker with no dependent children is eligible for a maximum credit of only $487 and is entirely phased-out of the credit once her income reaches just $14,340 – roughly what a full-time, minimum-wage worker would earn in one year. Additionally, childless workers under the age of 25 – a group enduring historically low labor force participation rates – are completely ineligible for the EITC regardless of their income. In an economy where more low-wage earners are middle-aged workers whose kids are out of the house, and where young people are struggling to gain a toehold in the job market, this just isn’t acceptable.
The 21st Century Worker Tax Cut Act would increase the maximum EITC for childless workers to about $1,400 (in 2015) and expand the income eligibility range so that childless workers remain eligible for the credit up to about 133 percent of full-time earnings at the current minimum wage. The bill also would reduce the eligibility age for childless workers to quality for the EITC from 25 to 21. The Treasury Department has estimated similar changes would help more than 13 million struggling workers climb the economic ladder.
- Making the EITC more effective for taxpayers. Democrats and Republicans agree that policies like the EITC have succeeded in helping millions of households lift themselves out of poverty—and as we expand the credit to more workers, we also have a responsibility to ensure that EITC claims are filed correctly. The 21st Century Worker Tax Cut Act would crack-down on improper EITC payments by doubling the penalty on tax return preparers – who prepare roughly 70 percent of all EITC claims – who do not follow the IRS “due diligence” requirements.
The cost of the 21st Century Worker Tax Cut Act, $144.9 billion over ten years, is paid for by closing tax loopholes that both sides agree are unfair. In fact, Democrats and House Ways and Means Committee Chairman Dave Camp (R-MI) have both proposed eliminating these costly and unfair tax loopholes. And updating our tax code to give tax relief to struggling workers, instead of big corporations, is just the right thing to do.
- Closing the corporate executive compensation loophole. Right now, big corporations are able to claim outsized tax breaks by paying their executives in stock options instead of regular paychecks, thereby skirting a tax rule that limits deductible cash compensation to certain corporate officers to $1 million per year. This loophole encourages executives to assume riskier management approaches in the hope of driving near-term profits and stock price gains. Many have drawn corollaries between these perverse incentives and the recent financial crisis.
This bill would close that loophole by subjecting stock options to the same $1 million per year deduction limit that already applies to cash compensation and applying the deduction limit to every employee’s income, not just that of a small handful of corporate officers.
- Preventing companies from avoiding tax by shifting profits to tax havens. A recent analysis by the Congressional Research Service found that, in 2008 alone, U.S. corporations reported profits in Bermuda – a tax haven with no corporate income tax – that exceeded that country’s GDP by almost 650 percent. U.S. profits reported in the Cayman Islands were almost 550 percent of that country’s economy. Clearly, these figures do not reflect record sales to islanders, but abusive profit-shifting schemes that give an unfair advantage to multinational companies over small businesses and domestic-only firms.
This bill would combat tax haven abuse by treating as Subpart F income – that is, eliminating deferral with respect to – foreign income subject to an effective tax rate of 15 percent or less, with an exception for income attributable to legitimate business operations in a foreign country.
This legislation would not only help struggling workers and families—it would also support broad-based economic growth. By making work pay for the households who are most likely to spend additional income, the 21st Century Worker Tax Cut Act would boost demand in communities across the country.
We should increase our outdated minimum wage to give millions of workers a raise, and then Democrats and Republicans need to come together to update our tax code to eliminate unfair loopholes and give today’s struggling workers the tax relief they deserve.