Expanding the earned income tax credit. At this event hosted by the Aspen Institute. All right, good afternoon, everybody. And welcome. My name is moyne conway, Vice President at the Aspen Institute and executive director of the Economic Opportunities program. And i am so delighted to welcome you to todays conversation in our working in america series. At the Economic Opportunities program we do a lot of a variety of work to advance ideas that will help lower and med upincome americans. In the working in america series in particular, we look at a variety of issues that affect the shape of opportunity that working americans face and consider ideas that could make things better for working people. Were extremely grateful to the ford foundation, to the prudential foundation, the walmart foundation, for their support of the working in america series. Were going to talk taxes and what tax reform could mean for low and moderate income earners in the United States. If you think about taxes, you probably try not to, one of the things you think about is the complexity of the american tax system. And this is not surprising because weve come to rely on the tax code to do a lot of policy making and incentivize a variety of economic behavior. So when we think about low income workers and in particular one of the things we think of is the earned income tax credit. In 2015, roughly 27 million workers earned the earned income tax credit. So that came to nearly 1 in 5 working people. So the tax system is a big deal for working people. But the tax code offers a variety of other incentives. We offered tax preferred saving vehicles for college, for retirement, we offer Home Mortgage deduction to encourage home ownership, there are incentives to businesses and investors to encourage job creation, theres preferential treatment for capital gains, theres targeted tax credits so you have like the war opportunity tax credit to encourage employers to hire veterans or other groups that are seen as face barriers to employment. In short we do quite a lot of Economic Policy making through the tax code. So at the top of tax reform comes along its important to think about the tax system not just sort of for the economy broadly but in particular how it affects working people in the United States. So today we go super walk and talk taxes. I have just a couple of thins to say before we get started. First of all, please do silence your phones. Were very thrilled to be Live Streaming as well as recording. Were very glad to have cspan here today. So please do silence your phone but please do tweet, talkgoodjobs. I also just lets see if i need to i dont need to do any of those things. I want to now introduce our panelists. So i am thrilled to introduce the panelists and i will start from my far left and work this way for your far right. We have frank clemente, executive director of americans for tax fairness. Next to frank we have maria avie, sarasota area president at united way sun coast florida. Next to her we have alex grow, Research Fellow at the American Enterprise institute. And i am delighted to have next to me jean sahadi, Senior Writer for cnnmoney. Com, our moderator for this conversation. I turn it over to you. Thank you so much for having me. Just a little bit of table setting on tax reform for middle income workers. Right now what were hearing from politicians is a lot about Business Tax Reform. You have a lot of support from the republicans, you have a lot of support even among businessfriendly democrats who really think that the business side of the tax code needs a lot of reform, more urgently even than the individual side. There also is a sense in fact, to me, as i cover this, it sounds more like lip service to how will this affect the middle class . How will it affect financially strapped workers . Its going to be very hard for them to just do Business Tax Reform without addressing the larger population. Im glad to be on this panel because i think well be able to discuss issues not currently being discussed. It seems to me there are four ways tax reform can affect low and middle income workers positively or negatively. You could talk about giving new or expanded tax breaks that already exist. But the underside to that is if other changes that are proposed undercut the value of those new or expanded breaks, that may or may not change the Tax Liability at all. Another way is through Economic Growth. Republicans are making the case that if you lower business tax rates and you reduce the tax sorry, lower business tax rates and then lower their breaks, that that will encourage investment, investment will create jobs, jobs will more jobs and higher wages. So hopefully that would work. Fit doesnt work, weve just blown through the deficit. A third way is to frank, youll speak to this point. Raise the rate on this high individuals, raise more revenue to support programs that help low and middle income families. Theres sort of an underside to all of those arguments. Right now we have a pretty progressive federal income tax code. 40 of filers end up owinging in in federal income taxes. Its unclear if some of the proposed changed would help the middle because their tax bill is zero to begin with. And as i said, if Economic Growth doesnt work out, all weve done is reduced the amount of revenue available to us. So im going to turn it over to these guys who are bring excellent perspectives all of them, very different perspectives, to lay out what they think is working today about the tax code for low and middle income workers and whats not and go from there. Afterwards well toss to it you guys for your questions. So alex, go ahead, whats working today and whats not for low and middle income workers . Thank you, thanks for having me here today. One of the things that i note when i think about federal income tax for low and middle income workers is the disparity to which the tax code affects different people within that population differently. Thats left side true across the income spectrum but particularly true among low and middle income families and how holds. As was mentioned, the earned income tax rate, is a very effective program. Helps raise people out of poverty. Encourages work and Market Participation. But not everyone who is lower or middle income is eligible for that program. Theres both people who are eligible and not getting the benefit. Theres some amount of improper payments in that program. Its also just a function of family size and family composition. Within the structure, there are a lot of people who are ineligible for that program. So the amount of taxes that are paid either when you ask when you say taxes meaning federal income taxes or all federal taxes which include payroll and excise taxes, varies widely. So that inconsistency creates complexity. Creates uncertainty for taxpayers. A taxpayer may have one Tax Liability one year and a very different Tax Liability another year, which makes it difficult to plan, difficult to prepare for their taxes. All of those things are inefficiencies in my view in the system. When we think about what we could do to this to the tax code, and when we talk about tax reform in washington, that discussion is about federal income tax, both federal individual income tax and federal Corporate Income tax. Were not having a conversation. We could but just the reality is were not having a conversation in washington about changes to the payroll tax system. Someone could introduce that topic. Were not having a conversation about changes to federal excise taxes. And of course washingtons not having a conversation about how the states should change their tax systems. So for the individual low to moderate income household theyre facing all sew sorts of taxes. But the tax reform debate is primarily related to income tax. Ill just say two specific things about how i think about how those taxes affect workers. With respect to the individual income tax, i think about tax policy in two ways. One is the average and the other is the marginal. So on average, what are people paying . What is their Tax Liability . For people who are low and moderate income, on average, their federal income Tax Liability not their total Tax Liability is negative. Policymakers could pursue strategies to make it more negative. But it is negative already. Were using that tax system to redistribute income to low and moderate income households generally speaking. Not necessarily every household. The other way i think about taxes is on the margin. Individual taxes on the margin. What happens when i earn one more dollar . Here we see again wide disparity among individuals who are low and moderate income. On average we see taxpayers facing marginal rate of 20 on the federal level. And higher when we start to bring in the effects of other programs. That can create disincentives for labor Market Participation or additional hours of work. The other way i think about the tax code with respect to these individuals is the effect of taxes of indirect taxes. Taxes that they dont pay that might affect their well being or livelihood. Here theres an emerging economic literature on the Corporate Income tax that finds that Corporate Taxes that are paid have an impact, adverse impact, on the wages that workers earn. One of the reasons i think policymakers are sellmotivated to pursue Business Tax Reform, Corporate Tax reform, is out of an understanding that those taxes will affect the wages of workers across the income spectrum. I did need to mention the other way low and middle income workers could be helped is simplification. I think well spec that out for you. Its stunning some of the things you told me before this meeting. Ways that united way sun coast is helping families is with free tax preparation. We believe that the vida program really provides families the mechanisms to, because the tax code is so complicated, that families sometimes struggle that they dont understand their tax returns. The volunteers are trained individuals that have to go through an irs certification to be able to help the families with their tax returns. And a lot of times folks will say, well, is it just that theyre not paying a fee to have their tax returns prepared . And at our united way, we filled out around 19,000 returns for families that brought 25 million back in tax credit for our families. If the preparers, tax preparers, charge say 200 for those individuals to have their tax returns prepared, we save the families of the 19,000 returns around 3. 8 million. And we have to think about that. Because one of the reasons that vida is so important is that were not only helping the individuals who are filling out a tax return, were also helping them understand their tax return. Were talking to them about how to build assets, how to save. What should you do with your tax return . Because if you think about it, families in florida, 44 of the families that live in florida just make enough for the basic expenses for child care or represent. Just having 400 in their savings account could help that one individual make it to work. Because maybe their car breaks down. So we have to think its beyond saving them on the 400 filing fee that they may be charged. But were providing assistance and advice on how to spend the refund that youre receiving, but we also show them, teach them, this is what your tax return, this is what youre paying for, a better understanding. Because i think the confusion, why we want tax reform to be simplified, is so its easier for families to understand. You know, and were asked a lot of times, well, if its simplified, do we still need vida . Yes, because many families need to have a place to go to, to understand what their taxes are going to be. We have many families that their average wage, the families that come to a vida site make 22,000 a year. And a lot of the families may not have a computer at home. And we currently have myfreetax. Com through the irs that they can prepare their tax return, but families like to come and talk to a tax preparer, just like all of us, have the opportunity to go to our tax accountant and get advice and get financial advice. Our low wage workers, they want to have those same opportunities. So we believe that the vida program is a very Important Program that we curtly have and we provide to low income workers. Thank you. Im happy to be here. Im going to take probably a little bit more of a macro approach to the issue. Because were actually in that kind of environment where were discussing whats tax reform going to look like in congress . President trump has a proposal, the House Republicans have had a proposal. And the way we look at it, americans for tax fairness, which is an organization of about 400 national and state organizations, were working for what we call a fair tax system. We believe that the wealthy and big, wealthy corporations ought to be paying quite a bit more in taxes than theyre paying now. Were not asking the middle class to pay any more. What we want to do is basically raise a lot more revenue so we can make the kinds of investments we think are critical for an economy, to create an economy thats going to work for all americans. Right now we think the economys not working for everybody. Theres a great deal of inequality in our country. The vast majority of the welt in the country is opened by the top 1 . Very little is owned by folks at the bottom. We need to change that dynamic. And part of it is to grow the economy and to grow the pie. We think the best way to grow the economy and grow the pie is to make investments. We actually think that we have what we call a revenue gap in this country. Ill use a little bit of math. Its not the easiest thing to understand. But revenue is about 18 federal revenue is about 18 of our economy right now. But our spending is 21. 5 . The difference between 21. 5 and 18 is the deficit. Thats what i call the revenue gap. That revenue gaps going to go up to 23. 5 versus 18 . Revenues going to stay flat but the gaps going to spendings going to go to 23. 5 . Why is it going up there . Because folks are retiring. We have a big baby boom generation. We have a choice. We could cut things, cut retirement security, cut medicare, cut social security. Or we can raise more revenue. And i believe you ask that question of the public, do they want to make more revenue to ensure retirement security, to ensure we can afford to put our kids in college, to rebuild our roads and bridges . We all recognize what a critical need there is to rebuild our infrastructure. To do new medical research. All of these things cannot happen now unless we raise significantly more revenue. And the only place to get that revenue is from those who are benefiting from the economy currently. If i could give one example, the Affordable Care act as an example of what im talking about. Thats the legislation that president obama got passed that provided Health Insurance to 20 Million People. That was paid for by taxing the richest 2 of americans. Putting an investment tax on them, a modest investment tax, and by adding a. 9 to their medicare tax. Were talking folks who make 250,000 and above, the top 2 . Also Insurance Companies and Drug Companies were asked to pay a little bit more because they were going to get a lot more business. Those taxes is what enabled us to provide health care korvepg to 20 million americans. And the problem is under the trumpcare legislation they want to wipe out those taxes which is why 20 Million People will lose their Health Insurance. Thats how we advocate using the tax system to create more opportunity for everybody. If i can play devils advocate, alex and frank, both of you seem to agree Corporate Taxes have a big impact on low and middle income families. But for very different reasons. Frank, you believe that higher taxes for corporations provides more money, federal government can spend on it lower to admit income workers. Alex, you believe if you lower corporate rates, korlgss will create more jobs, more investment, pay higher baseballs. Both those things sound completely reasonable except as a cynic now, because ive covered this for so long, i firmly dont think my companys going to give me higher wages if their tax rates are cut. Im dubious. I also dont think if you raise Corporate Taxes that companies will stay in the country. Right . Thats the whole point of Corporate Taxes. You two go right at it. You can tell us, come together, make my life late bit easier, because i do not understand how the two of you will come together on this. Lets start with what are corporations paying now . Theres the top line rate which is 35 . Thats called the top tax rate on corporations. Then theres lots of studies that have said that tax rate is substantially less than that. Were talking federal taxes, were not talking the entire state and local. Were talking federal taxes. The Government Accountability office, which is a nonpartisan entity, they looked for five years, 2008 to 2012, they looked at profitable u. S. Corporations. You dont want to look at unprofitable because they dont pay taxes. The profitable corporations are paying a 14 tax rate. So thats more than half less half under what the effective tax rate is. Theres lots of studies that have shown that essentially what alex, youre talking about trickle down. If you give more profits to corporations, they will