The Economic Mobility Act Could Deliver Much-Needed Tax Relief to Working Households
Last week, Rep. Richard E. Neal (D-MA-1), Chairman of the Ways and Means Committee, introduced the Economic Mobility Act of 2019. The bill was quickly approved by the Ways and Means Committee and will soon go to the House floor for a final vote.
Similar to Sens. Sherrod Brown (D-OH), Michael Bennet (D-CO), Dick Durbin (D-IL), and Ron Wyden’s (D-OR) Working Families Relief Act, this proposal is a step in the right direction for working families. If passed, this legislation would provide significant tax relief for low- and moderate-income families, including those who live in Puerto Rico and other U.S. Territories. With these reforms to the tax code, families could better be able to afford childcare, pay down debt, and save for retirement and emergencies. Essentially, the Economic Mobility Act seeks to harness the power of the tax code to help working families reach long-term economic mobility and prosperity.
So, how would this bill change the tax code to benefit low- and moderate-income households?
First, the bill would expand the Earned Income Tax Credit (EITC) to childless workers below the age of 25 as well as those above the age of 65 years old. This bill would also expand the maximum EITC benefit for childless workers by increasing it from $529 to $1,464. Research shows this is the only group either taxed into or pushed deeper into poverty by the federal tax code.
The Tax Cuts and Jobs Act increased the Child Tax Credit (CTC) from $1,000 to $2,000 per child. Unfortunately, because the credit is only partially refundable, many working families were unable to take advantage of this benefit. The Economic Mobility Act will open this tax credit to more families by making the CTC fully refundable up to $2,000 per child for two years. As a result, the folks who need the CTC the most will receive a larger share of the benefits and have full access to this critical support.
Additionally, the Economic Mobility Act has necessary, permanent refundable tax credit expansions for families in Puerto Rico. It includes a federal matching mechanism that would enable Puerto Rico to substantially expand its new, commonwealth-funded EITC while also making Puerto Rican families eligible for the same CTC benefits as families on the mainland. The EITC expansion would strengthen Puerto Rico’s formal economy and would have a substantial impact on working-class families in Puerto Rico.
The legislation would also make the Child and Dependent Care Tax Credit (CDCTC) refundable and increase the percentage of care expenses used to calculate the credit. Because of this, more low-income families will have access to a tax credit from which they currently receive little or no benefit. Those type of changes would better reflect the share of family budgets that child and dependent care expenses can consume.
Since the Economic Mobility Act focuses on low-wage workers and struggling families, this legislation would make the tax code more equitable for households of color. Recent research from Prosperity Now and the Institute on Taxation and Economic Policy (ITEP), found that the 2017 tax law overwhelmingly and disproportionately benefited wealthy White households but generally left behind households of color. Conversely, the EITC and CTC expansions in the Economic Mobility Act would meaningfully reach millions of low- and moderate-income households of color who disproportionately work low-paid jobs due to a history of discrimination and policy barriers to economic mobility.
Ultimately, if this legislation goes through, it would help make the tax code work better for working families and low-wage workers. However, even as both sides of Congress continue to propose and move bold legislation to create a more a more equitable tax code, we should be reminded that having these supports available in the tax code for working families does not necessarily translate to the intended beneficiaries having access to these critical supports. For example, according to the IRS, one out of every five eligible workers currently does not claim the EITC—despite being eligible for and having earned the credit.
And so, as these important tax debates continue to progress in Congress, we continue to call for support for the Volunteer Income Tax Assistance (VITA) program—including an increase in funding to $30 million in the fiscal year 2020—as it would allow hundreds of thousands of low-income households to fully access the benefits outlined in the Economic Mobility Act of 2019 and currently offered in our tax code, such as the EITC and CTC.