This originally appeared on the Tax Credits for Working Families blog on January 2nd and is reblogged with permission.

While the national media covered every twist and turn in the fiscal cliff negotiations, little attention was paid to the provisions of the law affecting tax credits for working families. So here’s the bottom line…

As anticipated, the deal makes permanent the changes to the Earned Income Tax Credit (EITC), Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC) that were first implemented in the “Bush tax cuts” of 2001 and 2003 tax bills. The marriage penalty relief for the EITC enacted in 2001 is now permanent, raising the income level at which the credit begins to phase-out and ends by $3,000 for married couples and indexing it for inflation. (This marriage penalty relief, however, is superseded for the next five years by a temporary extension of a 2009 expansion of the EITC, as discussed below).

continue reading The fiscal cliff and working family tax credits

President Ronald Reagan, a big supporter of the Earned Income Tax Credit

In all of the major income tax proposals this year (including the plan announced yesterday by Senate Republicans), the Earned Income Tax Credit (EITC) has been targeted for elimination. That’s strange, because lawmakers have made no clear argument for why we should lose this credit. They’ve spoken about the need to end handouts to “corporate special-interests,”  but the EITC goes to low-income working families.

It’s also strange because the EITC has a long history of support from conservative leaders. For example, at the State Chamber of Oklahoma’s tax policy forum earlier this month, Arthur Laffer said he would favor a “negative income tax” that pays credits to those earning below a certain amount.

The negative income tax idea has a long conservative pedigree, beginning with Milton Friedman. According to Friedman, the most efficient and effective way to solve poverty is to give poor people money. This preserves their ability to make market choices and reduces the need for bureaucracy to run more complicated assistance programs, such as food stamps and rent subsidies. To maintain the incentive to work, the payment is reduced by a fraction for each dollar the family earns. Rising wages would eventually eliminate the credit, but not so quickly that it makes more sense to stay unemployed.

continue reading The conservative anti-poverty program

Lost amid much of the tax cut discussion has been the fact that proposals coming out of the legislature would actually increase taxes on hundreds of thousands of low- and moderate-income families. That’s because they could lose a host of broad and effective tax credits designed to encourage work, support basic nutrition, and support families with children. A new video produced by OK Policy shares personal stories of what the impact could be.

We encourage you to watch the video and share it widely. Then head over to OK Policy’s take action page where you can learn more about what you can do to protect these important credits.

[UPDATE: A previous version of the graph left out the Child Tax Credit from the list of broad-based credits that make up the 68 percent.]

In a recent interview with KWGS, tax reform task force co-chair Senator Mike Mazzei argued:

The folks that really should be displeased with our tax reform are not individual taxpayers at these low income levels, but the corporate folks that are going to lose a lot of their special interest breaks that have helped them subsidize their profit margins. When you asked about winners and losers earlier, those are the folks that are going to lose in this style of tax reform.

This claim is false. Based on the task force’s own numbers, broad-based tax preferences make up more than two-thirds of the funds targeted for elimination. That’s why Sen. Mazzei’s plan would raise taxes for a majority of Oklahomans. It’s why the real losers under this plan are not corporate special interests; they are families with children and low-income seniors.

continue reading Who are the real losers in the tax shift plan? It's not "special interests"

Ken Miller is State Treasurer and a member of the the Task Force for the Study of Tax Credits and Economic Incentives.  This originally appeared as an article in the November Oklahoma Economic Report and is reprinted with permission. For an earlier blog post on tax credit reform by Task Force co-chair David Dank, click here, and see this piece laying out OK Policy’s position.

Critics contend that if politicians are good at anything, it is studying something to death. While this legislative interim has been full of task forces and studies, many promise to be more than just simple academic exercises. True, some are meant to garner attention for a favored issue. Others are meant to bolster an opinion. And some are honest undertakings in search of good policy.

And there are some with elements of each of the above. Facing a December 31 report deadline, the Task Force for the Study of Tax Credits and Economic Incentives is preparing final recommendations.

It is this task force member’s hope that rhetoric and ideology will play a subordinate role to sound policy and economic reality. The task force recommendations can impact our business climate for years to come and must take into account the competitiveness of states in attracting industry and economic growth.

continue reading Ken Miller: Rhetoric versus reality on tax incentives

Photo by flickr user zeuxis.pixelsurgery used under a Creative Commons license.

An idea floating around in the tax reform debate has been to swap tax credits for a reduction in the top income tax rate. That’s one of the motivations behind the tax credit task force, which has looked at reigning in a number of business and economic development tax credits.

Oklahoma also provides another kind of credit, directed not to favored industries, but to all taxpayers below a certain income level. Some lawmakers seem tempted to eliminate these as well. They should think again.

continue reading Beware the tax shift

Recently Maj. Gen. Rita Aragon, Oklahoma’s Secretary of Veterans Affairs, suggested that school gyms, playgrounds, and athletic fields should be opened to the public after hours. She argued that these “shared-use agreements” for public facilities would reduce obesity, especially in poor communities that may not have access to private gyms, parks, or safe sidewalks.

Aragon’s idea would be an effective and efficient use of public dollars based on a simple premise: the state identifies a public good and directly provides it. Contrast that with an obesity-fighting idea from a few years ago, when Sen. Mike Mazzei proposed a tax credit to reimburse 20 percent of the cost of health club memberships. This would have been more expensive than simply opening up schools and limited to those who could afford 80 percent of a health club membership. In addition, a substantial part of the credit would be wasted on those who would have joined a health club without it.

Sen. Mazzei’s tax credit was not made law, but it is emblematic of a common problem in public policy. Because we have stigmatized direct government action in many areas, we look for workarounds that are less efficient than if the state just went ahead and provided the service. This creates gaps in both efficiency and accountability.

Another example is how the state has encouraged rehabilitation of historic buildings. Lawmakers decided this was in the public interest, so they created a tax credit. However, because the credits were transferable, recipients sold many of them at 80 or 90 cents on the dollar. The buyers likely had no relationship to the rehabilitation project, so a significant percentage of the money was immediately wasted.

continue reading When you want something done, do it

If all the recent talk about tax credits and exemptions and tax reform have left you scratching your head, you’re not alone.  Keeping up with the tax debate – and its accompanying jargon and terminology – can challenge even the most committed news-and-politics-junkie.  Fortunately, this glossary of key terms from the Institute on Taxation and Economic Policy can help.  The glossary accompanies ITEP’s updated ‘Guide to Fair State and Local Taxes‘.  Print it out and keep a copy handy for the next time you need to make sense of the state’s tax policies.  The glossary includes definitions like:

continue reading Read This: A glossary of tax terminology

Rep. David Dank is co-chair of the Tax Credit Task Force. This is his opening statement to the Task Force’s meeting of November 9th. It is reprinted with permission and has been edited for length as indicated by [...] The full unabridged statement can be seen here. A column presenting OK Policy’s recommendations for tax reform that previously appeared on Oklahoma Watch can be seen here.

[…] The very first question we need to ask today is who we are representing here []

I think the only valid answer is, The Taxpayers.

Not the special interests who have benefited from many of these tax credits… and certainly not the few who have manipulated this system for personal gain.

I think we should also make a second thing clear today [] We are not against business. We don’t oppose growth. We believe that government policy can help create jobs. We don’t think all credits or incentives are bad.

What I think most of us believe after all we have heard here is that far too many tax credits and other incentives enacted in the past were created for the wrong reasons, and in the wrong way.

continue reading Rep. David Dank: On tax credits, the time for change is now

Scott Meacham is the former State Treasurer and former director of the Oklahoma Office of State Finance. He currently chairs the Oklahoma Chamber of Commerce’s Economic Development and Taxation Committee.

The Oklahoma legislature has struggled for decades with the best way to encourage capital investment in Oklahoma. Many ideas have been tried with varying degrees of success. The problem is that once the ideas are launched by the legislature, usually as tax benefits under Oklahoma’s tax code, they are all but forgotten. Tax benefits included credits against tax liability, deductions against income and, in some cases, direct payments from the State. No real processes exist to critically evaluate these programs and eliminate those that are not working. The result is that the least effective of these initiatives stay on the books and end up costing the state hundreds of millions in lost tax revenues.

The Rural and Small Business Tax Credit programs are one of the prime examples of bad tax policy run amok. The legislature launched these programs a decade or more ago with the stated purpose of encouraging venture capital investment in Oklahoma. The structure created was very complicated, with entities called Capco’s serving as a sort of investment pool where investors would make investments and receive hefty tax credits in return. The Capco would then invest the investor funds, perhaps along with borrowed money, in qualifying rural or small business ventures.

The problems started almost immediately as smart lawyers figured out loopholes and ways to provide tax benefits which in some cases exceeded the amount invested. With such lofty investor returns at the expense of state tax revenues, investors quit paying attention to the merits of the underlying investments, as they literally had nothing to lose. In one highly publicized case, the investors took their credits and no investment was even made. The State was left totally holding the bag.

continue reading Guest Blog (Scott Meacham): Rural and Small Business Credits are bad tax policy run amok