Tax Hikes on the Working Poor

In case you haven't been paying attention, a concerted effort has been underway for more than a year to depict low-income workers as tax freeloaders. Most taxes are paid by the rich, the argument goes -- the "job creators" -- while workers at the bottom are paying less and less.

In other words, taxes are unfair, only it's the affluent who are getting a raw deal.

This is pure nonsense. The often cited statistic that half of Americans pay no taxes is a textbook case of misinformation, since that "fact" conveniently excludes payroll taxes, which the vast majority of households do pay and which hits hardest at the bottom of the income ladder. Then, of course, there is the highly regressive tax system in the states, which -- as we have pointed out -- has the bottom 20 percent of households paying a vastly higher percentage of their income in taxes than the top 1 percent.

Regardless, this week we will see a culmination of the campaign to raise taxes on the poorest workers when Senate Republicans push legislation that would extend the Bush tax cuts for the wealthiest Americans while letting tax credits expire for low-income households.

Last week, the Center for Tax Justice released a report detailing the massive hit that low-income workers, many of whom live in or near poverty despite working full time, would take under the GOP plan.

Republicans are targeting the temporary tax breaks that Congress enacted in 2009 as part of the stimulus. Part of the logic here is that these breaks were supposed to be "targeted, timely and temporary,” as Antonia Ferrier, a spokeswoman for Senate Finance Committee Republicans, said recently, and now it's time for the breaks to go.

Never mind that the Bush tax cuts were also, by law, finite in duration and Republicans have no problem extending these cuts yet again.

Letting the tax breaks for low-income workers expire would have major consequences for 13 million working families with 26 million children.

First, while low-income workers making only $3,000 a year are now eligible for the child tax credit, thanks to the 2009 law, the GOP plan would raise that threshold to $13,300. Which is exactly backward: The poorer workers are, the more they need their income subsidized. Also, the lower eligibility threshold raises the incentives to work and at least make some money, while upping the threshold could have the opposite effect. 

According to CTJ, the GOP plan would force 8.9 million working families, with 16.4 million children, to pay a total of $7.6 billion in additional taxes -- or an average of $854 per family. That's serious money for these families.

Similarly, the GOP plan would scale back the expansions to the EITC that Congress enacted in 2009. The EITC is the most effective program ever for keeping working people out of poverty and rewarding the value of work. The changes made in 2009 should become permanent. But conservatives in Congress would scrap them, with the result that next year 13.1 million working families, with 25.7 million children, would pay a total of $11.1 billion more in taxes, an average of $843 per family.

Quite apart from the unfairness of targeting these tax breaks while extending huge breaks to millionaires, this is bad economic policy. Tax cuts to workers at the bottom were part of the stimulus because such workers turn around and spend extra income immediately -- while affluent households with more income may just pile extra cash into that college savings account.

Letting tax credits for low-income workers expire next year would suck billions of dollars out of the pockets of consumers mostly likely to spend every dime they have. CTJ analyzed the effects state-by-state and found that low-income households in Nevada would see the biggest reduction in their spending power: 113,535 families would have, on average, $1,017 less to spend next year.

As it happens, Nevada also has the worst economy in the nation and the highest unemployment rate: 11.6 percent, as of last month.

Republicans insist that the Bush tax cuts to the wealthy must be extended because the economy is weak. Yet they tout a plan that would vacuum billions of dollars in household income out of the worst off state.

What's wrong with this picture?