21st Century Worker Tax Cut Act seeks to create and expand tax deductions for middle-class families

Working Families Tax Relief Act aims to improve and expand Earned Income Tax Credit & Child Tax Credit

WASHINGTON, DC – Seeking to reward hard work and help workers keep more of what they earn, U.S. Senator Jack Reed (D-RI) is backing a pair of bills aimed at providing middle class families with some meaningful tax relief.  The first bill, the 21st Century Worker Tax Cut Act, would provide working parents in two-earner families with young children a 10 percent credit on the second earner’s income – making work pay a bit more for households struggling to make ends meet.  The second piece of legislation, the Working Families Tax Relief Act, would expand and strengthen the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC), provisions in the tax code that millions of families rely on.

“We need a multi-faceted approach to improving our economy and increasing living standards for working families.  Our workforce has changed a lot over the last few decades, so as we work to build an economy that works for all families, not just the wealthiest few, we need to focus on making sure our tax code is rewarding work, and expanding opportunity,” said Reed.  “These bills would complement other critical reforms, like pay equity for working women and raising the minimum wage, by updating our tax code to provide targeted tax cuts designed for today’s workforce.”

The 21st Century Worker Tax Cut Act, authored with Senator Patty Murray (D-WA), would help low to middle-income families by allowing a 10 percent credit on up to $10,000 of the secondary earner’s income.  In other words, qualifying families can directly reduce their income tax bill by up to $1,000.  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, and this credit will help offset that cost.

This new credit also reduces a family’s earned income for the purposes of calculating the EITC.  This feature ensures that low-income, two-earner families who do not owe income tax—because their combined income is too low—and who otherwise would not benefit from the deduction, instead benefit through an enhanced, refundable EITC.  Last year, the Joint Committee on Taxation (JCT) estimated that a similar proposal would benefit 7.3 million two-earner families across the U.S.

Thirty years ago, the majority of families with children had only one parent working outside the home.  But now, roughly two-thirds of married couples with children rely on the earnings from two workers to pay the bills.  However, marriage penalties in the tax code – along with income phase-outs for the EITC and direct spending programs, and additional costs incurred with both spouses at work (e.g., child care, transportation) – can result in implicit marginal tax rates on struggling families higher than what some of the wealthiest Americans pay.  In the worst of cases, these realities can discourage a potential second earner, like a mother considering re-entering the workforce, from returning to her professional career.

Last year, experts at the Brookings Institution found that a similar proposal could help more low- and middle-income working families return to the workforce.

“The 21st Century Worker Tax Cut Act will help keep tax bills lower for millions of Americans while also making it easier for parents to stay in 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,” added Reed.

Reed has also joined with Senators Sherrod Brown (D-OH) and Dick Durbin (D-IL) to introduce the Working Families Tax Relief Act, a bill to expand the Child Tax Credit and Earned Income Tax Credit.  The Brown-Durbin-Reed bill would provide tax credits to lower-income workers by expanding eligibility of the EITC and enhancing the CTC.

The expanded and improved EITC is currently only extended to 2017, but this bill seeks to make it permanent while also increasing the amount low- and moderate-income taxpayers could receive in refunds.  The legislation would also:

  • Make it easier for single taxpayers without dependent children to qualify for the tax credit;
  • Index the CTC to inflation; and
  • Simplify and clarify the process for claiming the EITC and CTC.

“The Working Families Tax Relief Act will help keep tax bills lower for Rhode Islanders who qualify, while also making it easier for full-time workers to become eligible for the maximum credit,” said Reed.  “We cannot allow these tax credits to expire on Rhode Island families, and this bill would give workers the peace of mind that comes with knowing these critical tax credits will remain in place permanently.”

When Congress passed the American Taxpayer Relief Act of 2012, it permanently extended several aspects of the Bush tax cuts that benefit the wealthiest households, but included a five-year sunset on key improvements to the EITC and CTC.  Letting these EITC and CTC provisions expire could have a dire impact on the economy and working families across the country.  A study released last month by the Center on Budget and Policy Priorities (CBPP) found that more than 16 million people in low- and modest-income working families, including 8 million children, would fall into — or deeper into — poverty in 2018 if policymakers fail to make the EITC and CTC permanent before the 2017 expiration.

The same CBPP analysis found that letting the EITC and CTC expire in 2017 would affect 31,000 Rhode Island families including 56,000 children, and would push approximately 39,000 people into – or deeper into – poverty throughout the state.