Lawmakers in Congress have recently announced five different proposals to either expand existing tax credits of create new ones. While each proposals has its differences, each one would also benefit low- and moderate-income people, particularly in West Virginia. Low- and middle-income West Virginians would see much greater benefits under any of the tax credit proposal than they have under the Tax Cuts and Jobs Act.
The five proposals include the Cost-of-Living Refund Act, which would expand the Earned Income Tax Credit (EITC), the American Family Act, which would expand the Child Tax Credit (CTC), the Working Families Tax Relief Act, which would expand both the EITC and the CTC, and the LIFT the Middle Class Act and the Rise Credit would both create new tax credits, with the Rise Credit replacing the current EITC.
Each proposal takes a different approach to using tax credits to boost incomes of low- and moderate-income families, and each one has a different impact. One thing is true about all these proposals—they are far more targeted toward low- and middle-income West Virginians than the 2017 Tax Cuts and Jobs Act (TCJA).
The table below compares the average tax cut by income group of each of the five proposals to that of the TCJA.
As the table shows, the TCJA provided the majority of its benefits to the wealthiest West Virginians, while providing relatively little to low- and middle-income West Virginians. The TCJA was designed that way, with major cuts to the top income tax rates and the corporate income tax. In contrast, all five of the recent tax credit proposals were designed to give the biggest benefit to the bottom three-fifths of income earners. These tax proposal show that it is in fact possible to have a large tax cut these doesn’t result in most of the benefits going to the rich. For West Virginians earning less than $37,300 all 5 of the tax credit proposals offer a bigger tax cut than the TCJA. 3 of the 5 proposals offer a bigger tax cut to the middle 20% of West Virginians than the TCJA. The largest average tax breaks are provided by the LIFT Act and Rise Credit.
The tax code is just one tool available to address income inequality, stagnating wages, and child poverty. But policies favoring the wealthy, like the TCJA, at best ignore these issues, and at worst exacerbate them. The 5 policies proposals all would address the issues of income inequality and child poverty head on, in different ways and to different degrees. But each one would be a step in the right direction, especially compared to the TCJA.