Tax Policy Center: Taxes and Social Policy
Tax Policy Center reports on: Taxes and Social Policy - The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is comprised of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government.

• The Disappearing Child Care Credit
  There are two primary tax benefits parents use to offset childcare costs. The Child and Dependent Care Tax Credit (CDCTC) provides a tax credit of up to 35 percent on up to $3,000 of expenses per child ($6,000 total), for a maximum credit of $1,050 per child ($2100 total). Or, employees can arrange with their employers to exclude up to $5,000 from their salary to pay for child care. While benefits from the CDCTC swamped those available from the exclusion in 2006; benefits from the child care credit are projected to decline dramatically, largely due to the increase in the number of taxpayers subject to the Alternative Minimum Tax (AMT) beginning in 2008.
• A Proposal to Finance Long-Term Care Services through Medicare with an Income Tax Surcharge
  This paper proposes to expand Medicare to cover comprehensive long-term care services, including home care and custodial nursing home care. These services would be financed by a surcharge on federal income taxes. Unlike the regressive payroll tax that finances Medicares hospitalization coverage, the proposed surcharge would not increase tax burdens for low-income people. Beneficiaries would share costs through deductibles and copayments, but the program would include stop loss coverage and special protections for low-income adults. By providing long-term care insurance that protects the assets of older adults, our proposal would eliminate the savings disincentives inherent in the means-tested Medicaid system.
• Reforming the Child and Dependent Care Tax Credit
  The child and dependent care tax credit (CDCTC) is a nonrefundable tax credit designed to help offset the expenses of providing care for children under the age of 13 or disabled dependents as long as a parent or caretaker is working or searching for work. In theory, a low-income family can qualify for a maximum $2,100 credit. The credit is not refundable, however, and families with low incomes generally owe little or no income tax. Thus, the theoretical maximum rarely applies in practice. This paper examines the revenue and distributional implications of making the CDCTC fully refundable.
• Eligibility for Child Tax Credit by Age of Child
  The child tax credit (CTC) is a $1,000 partially refundable federal income tax credit for each qualifying child under age 17. In 2007, tax filers may claim a refundable credit (over and above any tax liability) equal to 15 percent of the excess of earnings over $11,750, up to the $1,000 maximum per child. The earnings threshold means that families with very low incomes get no benefit from the credit, and others will receive only a partial credit. This brief analysis shows that many families with young children tend have lower incomes and are thus left out. In 2007, 30 percent of qualifying children under age 2 in working families had family incomes too low to benefit from the full credit, compared with 27 percent of children overall and 24 percent of children 10 and older.
• Subsidizing Higher Education Through Tax and Spending Programs
  In 1997 Congress enacted a number of tax benefits directed toward helping middle- and upper-middle income groups meet rising college costs. This shift in goals and strategies raises concerns about the fairness and effectiveness of the evolving federal approach to higher education. This policy brief analyzes who benefits from the major direct spending program, Pell grants, and the three tax subsidies that most closely resemble grants, the Hope and Lifetime Learning credits and the deduction for tuition and fees. In addition, the brief assesses the potential impacts of these direct spending and tax programs on the affordability of college and the college-going rates of potential students.
• Fairness in Tax Policy : Testimony Before Subcommittee on Financial Services and General Government, House Appropriations Committee
  In this testimony, Burman summarizes the trends in inequality, examines the role the federal tax system has played in mitigating inequality, and discusses the effect of the tax cuts enacted since 2001. He concludes that while the income tax system provides one mechanism of redistributing the gains of our dynamic free-market economy more equitably, the immediate benefits of the recent tax cuts have accrued disproportionately to those with very high incomes and have undermined tax progressivity. Without knowing how they will be financed, it is impossible to determine how these tax cuts will ultimately affect the distribution of economic burdens in the United States.
• Income Taxes and Tax Rates for Sample Families, 2006
  This article examines variations in tax liability and tax rates confronting typical families as income and the number of children change for tax year 2006. Although the examples represent very simple tax situations, they illustrate how hidden taxes and subsidies can make the marginal tax rate an amalgam of different effects. Often, the effective marginal tax rates and average tax rates can vary significantly from the statutory tax rates because of the phase-ins and phase-outs of deductions and credits, the individual alternative minimum tax, progressive tax schedules, and other aspects of our income tax system.
• KiwiSaver Evaluation Literature Review : Final Report to Inland Revenue
  KiwiSaver is a new saving incentive program in New Zealand that requires automatic enrollment of all new employees, with an option to opt out. KiwiSaver also subsidizes participation, but its subsidies are smaller than tax subsidies for saving in qualified retirement plans in the United States. Recent research shows that using automatic enrollment as a default rule substantially increases participation in retirement saving plans, but evidence on whether saving incentives plans increase net saving is mixed. KiwiSaver is the first large-scale test of whether default rules can be more effective than financial incentives in increasing retirement saving.
• Tax Credits, the Minimum Wage, and Inflation
  Two primary wage-support policies help low-income families: the minimum wage and targeted tax credits. Since 1997, when Congress last raised the minimum wage, the real value of the minimum wage has fallen about 20 percent because of inflation, while the earned income tax credit (EITC) and child credit have been expanded. This brief illustrates how current tax rules interact with the minimum wage and considers whether increased tax credits could substitute for minimum-wage increases for those earning the federal minimum wage. Increasing tax credits enough to substitute for raising minimum wage is probably infeasible because of the cost and the high marginal tax rates required. A more direct route to helping low-wage workers is to raise the minimum wage and index it to inflation.
• Doing Nothing's a Good Thing
  In this Marketplace commentary, Len Burman, director of the Urban-Brookings Tax Policy Center, says that extending temporary tax measures enables Congress to avoid serious tax reform and hide deep problems.
• Analyzing Recent State Tax Policy Choices Affecting Low-Income Working Families : The Recession and Beyond
  Owing to balanced budget requirements, states often raise taxes during recessions. Unless carefully crafted, these tax hikes can fall on low-income working families--the same families likely to be subject to concurrent budget cuts. During the recession that started in 2001, states utilized several tools to balance budgets including tapping rainy day funds, borrowing, increasing taxes, and cutting spending. In many cases, low-income families were shielded from tax increases by increasing or creating state Earned Income Tax Credits (EITCs). This policy brief details state tax changes affecting low-income families between 2002 and 2006.
• Should we subsidize work? Welfare reform, the earned i