The Observation Deck

ok this is a dumb question but someone told me Obama wants to "do away" with the earned income tax credit but knowing he initiated this in Illinois and not having read anything recently on this, has anyone heard that rumor?

Do people actually get back more than they paid in taxes with this?

The answer to your first question, is no, not necessarily. He hasn't actually proposed anything. But, there is bipartisan talk about radicle tax reform that needs to happen and there was the debt commission that made many recommendations. EIC may very well be one of the casualties, but I'm sure that would only happen in the broader scope of overall tax reform, not just killing the EIC off.

As for the second question, oh yea, many, many people with the EIC get more back in taxes than they pay...if they even pay any taxes at all. This I feel is fundamentally unfair. You should never be able to get back more than the total you pay in. But this isn't just an EIC issue, it's really the same issue with any tax "credit" in the tax code today.

Justine,

For more information check out Lakewood Family Collab Blog on this issue at: http://lakewoodfamilycollab.wordpress.com/2010/11/23/earned-income-tax-creddit-support-for-individuals-familes/#respond. The Collab addressed this issue in our December general meeting.

Refund Ohio I believe also left a comment. You might find a link that addresses what is being considered in tax reform on this specific topic.

Thanks for the link. I totally think the Family Collaborative is a wonderful asset, but I have to admit I feel conflicted on offering free services to families for the tax refund. I have to agree with Bryan that this credit seems fundamentally unfair. I don't see how our country can afford to pay families or individuals back MORE than they paid in taxes. It seems the system actually penalizes families for working extra jobs or even going back to get higher education to get higher paid jobs, unless I am missing something.

In the link it states that money is left on the table if families don't claim it, but what does that really mean? I know of people who claim this credit but work under the table or don't marry so both incomes don't count. I just wonder if it is counterproductive sometimes and maybe does need revamped.

Justine Cooper wrote:Do people actually get back more than they paid in taxes with this?

Yes, this is a refundable credit which means even if you have no tax liability you get money.

In 2009 approximately 47% of Federal tax returns paid no income tax whatsoever and some of that 47% got a 'tax refund' via refundable credits from the Feds simply for living and breathing. It's basically income redistribution.

I don't think its fair when basically half the households in the US don't pay any Federal income tax. Yes, there has to be a safety net at some dollar amount but one half supporting the other half is a pretty big net.

From 1998 to 2005, the Government Accounting Office reported that 2 out of every 3 corporations paid NO Federal income tax. In addition, many received government subsidies on top of not owing any tax.

I am starting to see why our country is so bankrupt.

I totally think the Family Collaborative is a wonderful asset, but I have to admit I feel conflicted on offering free services to families for the tax refund. I have to agree with Bryan that this credit seems fundamentally unfair. I don't see how our country can afford to pay families or individuals back MORE than they paid in taxes.

The Lakewood Family Collaborative consists of professionals (usually social workers), Lakewood organizations, and Lakewood citizens who come together to share and pull resources to help families & kids be successful. At Collab meetings we bring a diverse group of people together and try to spark dialogue—there is a theme/subject that we address each month. We don’t determine tax law nor do does the Collab offer tax services. However, we do help to get the word out for our members, in this case the city, about their programs and services. The Collab by bringing so many different kinds of people and groups together create awareness about issues that most affect our community.

Professionals, as you know, don’t judge whether a program is right or wrong (not in a public way) , they do their job and work toward providing the service. Also, the free tax preparation is offered to everyone, not just those who should receive the EIC. But, as you mentioned, so much goes unclaimed. Families/Individuals that do qualify for it, as it is now the current tax law, should know about it and get it. The point is to allow people who are struggling financially to keep whatever refund they might get without having to pay hundreds of dollars to a tax service.

I don't think its fair when basically half the households in the US don't pay any Federal income tax. Yes, there has to be a safety net at some dollar amount but one half supporting the other half is a pretty big net.

I don’t know if the tax law the way it is now if fair or not. I know that there are families who are really hurting and they are struggling to take care of their families.
We just had our government give HUGE tax breaks to the wealthiest people in this country. A move that will continue to grow the deficit, and despite the rhetoric, will not create jobs for the very families that are currently helped by the tax law. Do we need reform? Absolutely. Yet, I don’t think that reform ought to be on the backs of the middle class or the lowest wage earners. If you want to cry foul, that is fine. However, it is only fair to mention that there are many wealthy Americans who are not paying their fair share either through the current tax law or by shipping their money out of the country.

From 1998 to 2005, the Government Accounting Office reported that 2 out of every 3 corporations paid NO Federal income tax. In addition, many received government subsidies on top of not owing any tax.

It frustrates me that our society wants to point to poor or struggling Americans (welfare, unemployment, EIC, health care, etc) and blame them somehow, but conveniently leave out the other end of our economic spectrum who usually is the winners. Wall Street gets bailed out while average citizens get their homes taken away. Rich get their tax breaks, and the unemployed have to fight & march just to get their $1400.00 a month to just keep going. CEO’s get rewarded with millions of dollars for driving their corporations into the ground and the union workers get blamed.

America is at a crossroads. We need to figure out what we value and what kind of country we want to be.

There are always going to be tax cheaters, but that is a solvable problem if we can catch them.

I think a more serious problem is that our leaders use the tax laws for more than just raising money; many of the provisions are in the nature of social engineering and wealth redistribution. They have done that so extensively that there is an extensive, but not productive, industry in filling out tax returns for those of us who cannot deal with the complexities.

Many of the social engineering schemes have hurt us. For years, the federal government has felt that a high rate of home ownership was desirable; so they have allowed deductions for many of the costs associated with buying and owning a home. Interest paid on a mortgage became a deduction, leading to more and more people buying houses and considering it an investment. Home prices increased relentlessly, and the amount people would borrow followed. Pseudo government agencies led the way in this financing craze, and some bankers beat them to remain competitive. When the scheme imploded, naturally it was bankers who were at blame, but the tax code was just as guilty. And has anything changed? Earned income credits are another well meaning scheme; but when you look at it, your start to realize that it often leads to people avoiding getting better jobs because they want to maintain eligibility for the EIC. So at the end of the year, will they do a little extra work to earn $150 that will put them over the limit for the EIC? Not if they realize that the $150 is going to be taxed, so it isn't really $150 in their pocket, while the EIC is not taxed.

A federal sales tax would go a long way toward reducing the complexity of the tax code, but I think it would have to be very high because the government spends too much. I think a combination of a federal sales tax, combined with a simplified income tax (few, if any, deductions or credits) that did not reach the poorest, but applied to the more economically successful classes, would work, but there is little chance of passing such a law, because our lawmakers, in all honeshy, make a lot of money by selling deductions and credits for groups that have lobbyists. I would also eliminate the tax breaks that come with certain types of investment; investment decisions should be made solely on where you see the best opportunity for what you seek, not based on how long you have owned an investment, nor whether it will produce capital gain, dividends, or interest.

I was trying to type honesty above, but my spellchecker wouldn't let me use it in a sentence that included lawmakers, apparently.

I think the people who are whining about businesses not paying income taxes don't know the first thing about taxation of businesses. There may be some cheaters, but generally, a business that has no profit doesn't pay income tax and doesn't stay in business (businesses that have a tax loss and stay in business can carry forward the loss and use it as a deduction in the future). Businesses can claim a deduction for anything they invest in their business. So a business that makes a profit can use the profit to grow their business and pay no tax at that time. Congress has written the law so that businesses who are economically successful can use their profits to buy new assets, hire new workers, and make even more money. That seems to me to be sound policy, as it strengthens the economy.

Much has been made of giving the rich (its not really the rich, its the high income earners) a tax break. One poster feels that the rich do not put their money into the economy; in fact, they don't really stuff it in their mattresses; they invest it and investment, especially wise investment, is essential to the economy. They argue that money given to the poor will go back into the economy (or at least into lotteries, or to Chinese factories).

But some economists believe that our economy (based heavily on consumerism), is a house of cards, inherently unstable. We have a very low savings rate, and what we do invest is tied up in retirement plans, so you lose a lot of it if you take it out early. When the typical worker loses his job or gets hurt, he has no savings cushion to tide him over while he seeks new work, so he stops buying, which puts his neighbor out of work, and on and on. We have seen many periods of recession or depression, but we continue to live like there will never be tough times.

the federal government has felt that a high rate of home ownership was desirable; so they have allowed deductions for many of the costs associated with buying and owning a home. Interest paid on a mortgage became a deduction, leading to more and more people buying houses and considering it an investment. Home prices increased relentlessly, and the amount people would borrow followed.

I would agree with you on most of this. Owning a home in not a wise investment. A homeowner would be better off taking the money spent each month and investing it. However, there are other “pay-offs” from owning a home. Security, independence, and self-reliance are some. Communities urge home ownership because usually home owners will commit in the success of their community and take better care of the properties. Many people have bought into the idea that unless they own they are somehow financial losers. Most people would be better off renting, but not necessarily better for our city.

it often leads to people avoiding getting better jobs because they want to maintain eligibility for the EIC. So at the end of the year, will they do a little extra work to earn $150 that will put them over the limit for the EIC? Not if they realize that the $150 is going to be taxed, so it isn't really $150 in their pocket, while the EIC is not taxed.

Most people are just not that savvy. The tax code is confusing and hard to understand. Most families don’t even realize what this is and they can benefit from it. Really, you talk like it is an epidemic or something, but really very few are cheating the system. I think given the choice most would opt for a good paying job that would allow them to take care of their families and feel good about themselves.

but there is little chance of passing such a law, because our lawmakers, in all honeshy, make a lot of money by selling deductions and credits for groups that have lobbyists.

Agreed. Look at the great lengths one party went through just to keep tax breaks for the wealthiest Americans.

One poster feels that the rich do not put their money into the economy; in fact, they don't really stuff it in their mattresses; they invest it and investment, especially wise investment, is essential to the economy. They argue that money given to the poor will go back into the economy (or at least into lotteries, or to Chinese factories).

There has been plenty of discussion on what the wealthy do with their money and the savings from tax breaks. They don’t invest—they save it. Of course, one shouldn’t generalize a whole population of wealthy people, just like we shouldn’t stereotype the population of people who benefit from government help. Some wealthy people pay their taxes, and not all welfare recipients are cheating the system. I think most businesses, especially small business owners, do pay their taxes and they should be rewarded for reinvesting profit and creating jobs. I have heard the argument that if we don’t give tax breaks to the wealthiest that they will not hire or reinvest; however, the tax breaks are on their personal wealth—not talking about corporations. Putting money into the hands of people who are struggling allows them to pay their bills. That costs us less in the long run. They won’t have to file bankruptcy, businesses don’t have to pay collection agencies, and maybe they will stay off the dole. Tax breaks to people who are not struggling go into savings or other forms of personal investment. It is not the American worker shipping jobs out of this country—those decisions are coming from the top.

But some economists believe that our economy (based heavily on consumerism), is a house of cards, inherently unstable. We have a very low savings rate, and what we do invest is tied up in retirement plans, so you lose a lot of it if you take it out early. When the typical worker loses his job or gets hurt, he has no savings cushion to tide him over while he seeks new work, so he stops buying, which puts his neighbor out of work, and on and on. We have seen many periods of recession or depression, but we continue to live like there will never be tough times.

Agreed. We are told to spend and that when we are spending that is good for the economy while at the same time we are scolded for not saving. Look, times have changed. My father had it easier and he will admit it. Job security (35 years), paid benefits, a pension…he could provide for a family of 5. Not the case today, no benefits, pension, or security. The money we had to save is now paying for those benefits the baby-boomers enjoyed. We need to make stuff…here. As I stated before, we need to figure out who we are—what kind of country we want to have. We are polarized and split, but nothing will change until we wake up.

Kristine,
I think I worded my response wrong. My intentions were to NOT make it negative that the Family Collaborative offer this for free or encourage it, so I apologize if it came out that way. The Family Collaborative is a necessity for families and I am grateful for sure for all they do.

Will,
I am not trying to pick a fight, but I honestly think you skew things and often the skewing in this country is part of the ignorance of the truth of many government issues. Giving tax credits for owning homes was a good thing. It encouraged stability and owning a piece of our country. The housing market crash had zero to do with that. The housing market crash was absolutely the result of greedy banks, that worked with greedy appraisers, greedy title companies, etc. When people and companies purposely overinflate the value of a house to get a bigger mortgage, and have partners in appraisers and title companies banks with ridiculous interest rates that people generally do NOT understand in the mountain of paperwork, of course the results are disastrous. Were there people who also abused that tidal wave and overspent? Of course. When I cited one example on Elbur I was told I hate my neighbors. But the elimination of entire neighborhoods and the loss of homes for many that had been in their homes for years and were swindled is much higher. And 100 percent attributed to the banks and the non-conforming loans and their parnters in crime. And Joe Blow who lived next door working and paying his bills his whole life was affected by a decreased value for his home. The domino effect of these banks has wiped out the America most of us grew up with. I just don't get how you blame the government for that one.

Should the government have bailed them out? I know that was Bush's initiative and IF the banks pay back the government with interest and IF the banks help people out of foreclosure and all of that, then why wouldn't it be a win-win? But those same banks paying executives millionsn in bonuses? That is the country we have become Kristine.

Where is the middle ground in this country? I am tainted right now in my field, watching so many abuse the system, and abuse their children. I am tainted by the amount of people that blame teachers for kids not learnng while parents are given disability checks for their kids' behavior problems but not required to get them counseling, medication, or even show up for school meetings. And I feed them daily because they are hungry but hear how mom gets sixteen hundred dollars a month for food stamps. And then hear it is the teachers fault that the kids can't learn. Why do you think kids inthe subburbs do better? Do you think it is really the teaching is that different or the fact that mom and dad are involved and feeding their kids and the level of education in the home is higher and the ratio =a country that fights health care reform like it is evil like how dare the government try to get involved with health care, the most basic necessity and right to humans in a great country. We are talking about not dropping sick kids or adults from health care, or making it affordable. About making it competitive so the health care companies aren't walking away billionaires while employing people to find reasons to not approve needed surgeries. The government has to get involved when our country is full of corruption.

When I look around I don't like what the country has become. I want some middle ground.

Life doesn't really have an edit button. We can revise in the future but can't delete our past actions. I can choose to notn be tainted in 2011. It is never the fault of the children in this world for mistakes of the parents. Turning our backs on poverty turns our backs on our children, and given a choice, I would rather fight for the downtrodden than win with the other side. In the words of Kid Rock:

Day by day my life gets colder
My ice grows thin, as I get older
Peace in pieces, bloody and bruised
I feel so helpless and confused

Cuz I hear screamin’ on the left, yellin’ on the right
I’m sittin’ in the middle, tryin’ to live my life

Cuz I can’t stop the war
Shelter homeless, feed the poor
Can’t walk on water
I can’t save your sons and daughters
I can’t change the world and make things fair
The least that I can do, the least that I can do, the least that I can do is care

I pray and pray for life’s salvation
Faith is tried and true in tribulation
Love is lost and lonely, check the news
And with these open arms I’ll wait for you

Cuz I hear screamin on the left, yellin’ on the right
I’m sittin’ in the middle tryin’ to live my life

Cuz I can’t stop the war
Shelter homeless, feed the poor
I can’t walk on water
I can’t save your sons and daughters
I can’t change the world and make things fair
The least that I can do, the least that I can do, the least that I can do is care


Fighting issues here or anywhere will never lead to real change, only hurt feelings. I guess we all just have to work toward what we believe in our hearts is right and hope for the best.

Something to keep in mind about eic, while it is a successful anti-poverty measure, it is also a form of corporate welfare in that it insures a lot of people willing to work for minimum wage. It also puts money directly into the economy. That money gets spent immediately. It keeps the single mom with a couple of kids out of homeless shelters too. It is also not just for the "poor". It peaks out at around 44k for a family with 2 parents and three kids. Like foodstamps, we get about 1.25-1.50 into the economy for every dollar spent on the programs. I can look that up to provide a more exact figure.

Like many programs, there are elements of the EIC that are good, and good for hard working low-wage workers. I have a problem with the level of abuse I witness in this program and I have a problem with people getting back more in taxes than they pay.

I was a single mother for 8 years and never received a nickel in child support. I did receive the EIC some of those years while I worked with getting back a decent portion of taxes that I paid into, not more than I paid and yes it helped me. I actually qualified for this program with my BA in Social Work, making $22 grand at the time, barely above poverty, with a student loan and a child to care for. Before my child I easily worked two jobs to make ends meet. I didn't have big screen tvs or fancy cells phones (ok this was before their time). I get the premise and the theory.

However, as a teacher in the inner city hearing the attack from the conservatives on overpaid and lazy teachers being the ruin of our society ( ) and showing up everyday amidst language that would make most blush and often verbal abuse from students, it is difficult to hear students brag about how their moms sell food stamps. What is worse is that same mom, who doesn't work, has farmed out her social security number to relatives who do work, so they can claim EIC and give her a nice chunk. With ten kids it adds up. Please don't say this is an isolated incident. It is PREVALENT among many, who are smart enough to defraud the government, yet not using that brain to work and pay the taxes they are sucking back. Yea they are stimulating the electronic economy. Their kids have cell phones with the internet. At 14.

Wouldn't it be nice to focus on equity among all? Wouldn't it be nice to not attack professionals who owe thousands and thousands in student loans and pay decent taxes, mortgages, student loan money, etc. and then take our taxes to redistribute the money to some who choose not to go back to college or to work. I have witnessed the scam of some working "low wage" jobs JUST enough of the year to qualify to get back five grand. Significantly more than they pay. I have witnessed single moms living with their boyfriend but not marrying JUST to get that chunk of extra taxes at the end of the year.

There has to be a middle ground here. I am so sick of government reforms that help some and enable others and that have NO accountability. The bulk of education reform that billions of dollars have been spent on had NO accountability, starting with Head
Start from the beginning. They didn't pilot the program and they poured billions into a program with unqualified teachers and no researched based materials and research showed it was a failure after its inception, yet more money was poured into it.

What has to be done to ensure some accountability in any of these programs and fraud is decreased or eliminated?

As a PS I believe in the Head Start program and believe every child has a right to pre-school education. But the fact remains that for years it was poorly run and billions of tax money was poured into it. The whole premise of Head Start was to diminish the racial achievement gap. Those teachers, doing a difficult job, get paid wages in the poverty or barely above poverty area.

It is time for more better accountability in this country, in every area of taxes. It is not time to wage war on middle class hard-working Americans who help support every program out there for others.