For nearly two decades, Democrats and Republicans alike have recognized the need for comprehensive tax reform. House Speaker Paul Ryan recently declared that now is the time to “fix the tax code once and for all.”
Unfortunately, the latest House of Representative’s tax reform bill includes fundamental issues that must be resolved for Congress to deliver on its promise of “growth for all” Americans.
Namely, tax reform must do more to provide tax relief to the lowest-income workers struggling to get by, and to support middle-class workers who donate generously to their churches, synagogues and other private charities that are doing essential work to grow strong communities. Fortunately, there are evidence-based solutions that can support growth for both needs.
Providing tax relief to 26 million working Americans, the Earned Income Tax Credit is widely considered the most effective pro-work, anti-poverty tool in our nation, lifting 6.5 million Americans out of poverty each year. As the largest network of support for free tax help, United Way sees the positive impacts of the EITC firsthand through our work with millions of people at Volunteer Income Tax Assistance sites, as well as the online tax filing tool MyFreeTaxes.
But right now, millions of low-wage workers are largely excluded from this common-sense tax break simply because of their filing status. Rather than providing tax relief, our current code instead taxes 7.5 million workers into poverty because of their exclusion from the EITC.
Additionally, the CTC has an earnings threshold, and slow phase-in rate that makes it hard for lower-income parents to claim the credit—and proposals in both chambers only expand the CTC for top earners.
Congress must expand the EITC to workers who are not raising children at home, and lower the age of eligibility to 21. They should also strengthen the CTC for low-income parents, as advocated for by Republican Senators Rubio and Lee.
Pro-growth tax reform must also consider the impact the tax proposal will have on a core American value — charitable giving. Despite technically preserving the charitable deduction, charitable giving is expected to decline under the House proposal by $13 billion per year, as far fewer people will itemize their taxes. Inexplicably, people who don’t itemize their taxes are taxed on income they give to charity.
With so few “itemizers” under the new tax bill, taxes on charitable giving will dramatically increase. Middle-class taxpayers, who typically do not itemize, will be taxed on gifts, while wealthy Americans, who do itemize, won’t be taxed.
As a result of the decline in giving, local private charitable services like job training programs, homeless shelters, and food banks will decline. And, in turn, there will be more demand for government-provided services. In the wake of the outpouring of donations to hurricane relief efforts, it’s hard to imagine wanting to negatively impact the long-standing U.S. tax policy that encourages private charitable giving.
Fortunately, the answer is simple: Senators Debbie Stabenow and Ron Wyden want to make the charitable deduction available to all taxpayers, not only those who itemize their tax returns. Their amendment to the Senate tax bill will increase charitable giving, enabling the private sector to fight for the education of our children, preparation of our workforce, and the strengthening our local economies. At the same time, it will reduce the tax burden on the middle class.
The time may be right for an overhaul of the tax code. But if this Congress accomplishes comprehensive tax reform, it could be another 30 years before we have an opportunity to address any unintentional mistakes. That is why it is crucial for Congress to ensure they are making the best decision for all taxpayers. The current proposal may meet Congress’ basic goals of simplification and reducing some taxpayers’ rates, but there is so much that cannot be left undone — for all Americans now, and for the generations of Americans to come.
Mary Sellers is the U.S. President of United Way Worldwide.
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