Social_Policy

The federal earned income tax credit (EITC) was established in 1975 as part of the individual income tax to offset payroll taxes for low-income working families. After several expansions, the refundable tax credit is now the largest federal cash assistance program for low-income families. A growing number of states have adopted their own EITCs.

The tax entry threshold is the amount of income a family can earn prior to owing federal income taxes. The poverty threshold is considered to be the minimum dollar amount needed for individuals, couples, or families to purchase food and meet other basic needs. The poverty level increases with family size. How the two relate provides one way to measure how the tax system treats low-income families. If the tax entry threshold falls below the poverty threshold, policy makers might be concerned that low-income families are being asked to pay too much tax.

The behavior of state and local receipts around the end of a business cycle is historically mixed, but the last three recessions exhibit a common trend: receipts trail expenditures during the recession, and even a year or two afterwards.

The president's effort to "leave no child behind" has run into opposition on a variety of fronts. The Congress complained that the money was too little, insisted that the president spend less to reduce the deficit, and then passed the Omnibus Reconciliation and Giveaway Acts of 2003 and 2004. In desperation, the president has done what all modern presidents have done when they cannot achieve their goals through direct appropriations: Turn to the IRS for help.

On February 2, the Bush administration released its budget proposals for fiscal years 2005-2009. This article provides initial analysis of the budget, with several interesting conclusions.

Much of the discussion over President Bush's 2004 submission of a proposed budget for fiscal year 2005 and beyond has focused on what it is not. It is not an agenda for major reform. It is not a budget that Congress appears to take seriously, especially given the number of days it is scheduled to be in session for 2004. Here, however, I wish to take the budget at face value and to see what preferences are revealed in it.

In recent years, Congress has augmented traditional financial aid programs for higher education with tax-based subsidies. The tax subsidies can be very helpful to middle-income students who may not have been eligible for aid through traditional channels, but may be worth little or nothing to students from low-income families. This paper reviews financial assistance for higher education available through both traditional spending programs (grants, loans, and work-study) and tax assistance (credits, deductions, and tax-preferred savings plans).

In a tax system with increasing marginal tax rates, the tax increase from a boost to income is at least equal to the tax reduction from a decline in income and is larger if the change in income crosses a marginal tax bracket. As a result, people with volatile incomes may pay more tax than people with the same average income whose incomes do not fluctuate.

Here's one message from the new "bipartisan" Medicare bill currently being debated in Congress: Low-income elderly people are having a hard time paying for their prescription drugs, so we need... another tax cut for rich people! Today's tax cut for rich people--health savings accounts (HSA)--has been all but lost in the debate about the proposed new Medicare prescription drug benefit, but this wolf in sheep's clothing shouldn't be overlooked. It is bad tax policy and bad health policy.

Will Rogers once said, "If you find yourself in a hole, the first thing to do is stop digging." Medicare is in a deep hole. The small surpluses accruing right now will turn to deficits starting in about a decade when the baby boomers start to retire. By 2026, government actuaries estimate that the Medicare trust fund will be exhausted.