PROVIDENCE, RI – In an effort to reward hard work and help workers keep more of what they earn, U.S. Senators Jack Reed (D-RI), Patty Murray (D-WA), and Sherrod Brown (D-OH) are calling for passage of the 21st Century Worker Tax Cut Act.  The Murray-Reed-Brown bill would provide working parents in two-earner families with young children a 20 percent deduction on the second earner’s income – blunting marriage penalties in the current U.S. tax code and making work pay a bit more for households struggling to make ends meet.  The bill would also increase the maximum Earned Income Tax Credit (EITC) for childless workers to about $1,400, up from the current level of about $500 and reduce the childless worker eligibility age for the credit from 25 to 21.

The legislation seeks to build on work incentives both Republicans and Democrats agree have been effective, and is paid for by closing wasteful loopholes that both parties have acknowledged as worthy candidates for elimination. 

“We need a multi-faceted approach to improving our economy and increasing living standards for working families.  This is about simple fairness and rewarding hard work.  The 21st Century Worker Tax Cut Act uses bipartisan ideas to update the tax code and provide targeted tax breaks for working families in a fiscally responsible way that will boost our economy without adding to the national debt,” said Reed.  “This legislation will help keep tax bills lower for millions of Americans while also making it easier for parents to transition back the workforce.  A lot of Rhode Island households rely on paychecks from two working parents to make ends meet and this bill will help them keep more of their hard earned money.”

Experts at the Brookings Institution also note that the bill would help more low- and middle-income working families return to the workforce.

The 21st Century Worker Tax Cut Act would:

Make work pay for low- to middle-income families by allowing a 20 percent deduction on a secondary earner’s income.  In order to qualify, both spouses must earn income during the year and the couple must have at least one child under the age of 12.  Due to child care costs, young working families like these often face some of the highest implicit marginal tax rates on second earners’ income.

Boost the Earned Income Tax Credit for childless workers.  In 2013, a single worker with no dependent children is eligible for a maximum credit of only $487 and is entirely phased-out of the credit once her income reaches just $14,340 – roughly what a full-time, minimum-wage worker would earn in one year.  Additionally, childless workers under the age of 25 – a group enduring historically low labor force participation rates – are completely ineligible for the EITC regardless of their income. The 21st Century Worker Tax Cut Act would increase the maximum EITC for childless workers to about $1,400 (in 2015) and expand the income eligibility range so that childless workers remain eligible for the credit up to about 133 percent of full-time earnings at the current minimum wage.  The bill also would reduce the eligibility age for childless workers to quality for the EITC from 25 to 21.  The U.S. Treasury Department has estimated similar changes would help more than 13 million struggling workers climb the economic ladder.

Make the EITC more effective for taxpayers by cracking down on improper EITC payments by doubling the penalty on tax return preparers – who prepare roughly 70 percent of all EITC claims – who do not follow the IRS “due diligence” requirements.

The 21st Century Worker Tax Cut Act is estimated to cost about $145 billion over ten years, and is paid for by closing tax loopholes that both Democrats and Republicans agree are costly and unfair, such as:

Closing the corporate executive compensation loophole.  Right now, big corporations are able to claim outsized tax breaks by skirting a tax rule that limits deductible compensation to certain corporate officers to $1 million per year.  This loophole can encourages executives to assume riskier management approaches in the hope of driving near-term profits and stock price gains.  Many have drawn corollaries between these perverse incentives and the recent financial crisis.  This bill would close that loophole by subjecting all executive compensation to the same $1 million per year deduction limit that already applies to ordinary compensation and applying the deduction limit to every employee’s income, not just that of a small handful of corporate officers.

Preventing companies from avoiding tax by shifting profits to tax havens.  A recent analysis by the Congressional Research Service found that, in 2008 alone, U.S. corporations reported profits in Bermuda – a tax haven with no corporate income tax – that exceeded that country’s GDP by almost 650 percent.  U.S. profits reported in the Cayman Islands were almost 550 percent of that country’s economy.  Clearly, these figures do not reflect record sales to islanders, but abusive profit-shifting schemes that give an unfair advantage to multinational companies over small businesses and domestic-only firms.  This bill would combat tax haven abuse by treating as Subpart F income – that is, eliminating deferral with respect to – foreign income subject to an effective tax rate of 15 percent or less, with an exception for income attributable to legitimate business operations in a foreign country.

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