Giving Credit Where Credit is Due?

The Tax System and Low-Income Households

Wednesday, April 12, 2006
9:00 - 10:30 am (Continental breakfast 8:30 - 9:00 am)

The Urban Institute
5th floor, Katharine Graham Conference Room
2100 M Street, NW
Washington, DC

April 15 is a day of dread for many Americans, but filing a tax return is not bad news for everyone. Last year, in addition to the over 100 million Americans who received refunds because their withholdings exceeded their tax liability, over 20 million taxpayers actually received net refunds over and above the taxes they paid. The refundable portion of the earned income tax credit accounted for $34.6 billion of net refunds in fiscal year 2005 and the refundable portion of the child credit another $14.6 billion. Still, many tax benefits, including subsidies for child-care, college tuition, saving, health insurance, and home ownership, among others, are structured as either non-refundable credits, deductions, or exclusions, providing little or no benefit to low-income households.

There are both advantages and disadvantages of using tax subsidies instead of direct outlays to deliver benefits, but politicians of both parties find tax subsidies attractive because they are a way of advancing programmatic goals and supporting constituencies without appearing to increase spending. Both the Bush and Clinton Administrations have proposed new and expanded tax incentives, including refundable credits, in their budgets. In this year?s budget, for example, the President proposed new refundable credits for the purchase of high-deductible health insurance.

As we consider how to improve (or even maintain) the social safety net in the coming years, tax benefits will remain an important part of the debate:

• What are the important considerations in determining whether a program should be designed as a tax subsidy or as a direct outlay?
• How well do tax subsidies work as a vehicle for helping low-income people?
• Should the benefits of existing tax credits for higher education, savings, and child-care, among others, be made available to more low-income taxpayers by making them refundable?
• Should other incentives in the tax code be restructured as credits or refundable credits instead of deductions?
• How can current refundable tax credits be made simpler and more effective?
• What are the main challenges the IRS faces in administering the earned income credit? What steps is it taking to improve compliance while maintaining high participation rates?

Speakers:
LILY BATCHELDER            Audio
Assistant Professor of Law and Public Policy, New York University School of Law

JANET HOLTZBLATT           Audio
Deputy Director for Individual Taxation, U.S. Department of the Treasury

ERIC TODER                     Audio
senior fellow, Urban Institute and former director, Office of Research, Internal Revenue Service

DAVID WILLIAMS               Audio
Director, Earned Income Tax Credit Office, Internal Revenue Service

Moderator:
JODIE ALLEN                    Audio
Senior Editor, Pew Research

Question & Answer:          Audio