Research by Author & Topic

Publications by Laura Wheaton on Tax Policy

This paper examines the noncustodial parent earned income tax credit (NCP EITC), a new type of credit recently enacted in New York and Washington, D.C. and proposed by Senator Bayh and then-Senator Obama in 2007. The NCP EITC offers an earned income tax credit to low-income noncustodial parents who work and pay their full child support. This paper describes the rationale for this policy and provides national estimates of the benefits and costs of an NCP EITC under three alternative policy scenarios. It also discusses several key design and implementation issues.

The child tax credit (CTC) is a $1,000 partially refundable federal income tax credit for each qualifying child under age 17. In 2007, tax filers may claim a refundable credit (over and above any tax liability) equal to 15 percent of the excess of earnings over $11,750, up to the $1,000 maximum per child. The earnings threshold means that families with very low incomes get no benefit from the credit, and others will receive only a partial credit. This brief analysis shows that many families with young children tend have lower incomes and are thus left out. In 2007, 30 percent of qualifying children under age 2 in working families had family incomes too low to benefit from the full credit, compared with 27 percent of children overall and 24 percent of children 10 and older.

In 1997, Congress created a $500 per child tax credit (CTC). It has since been increased to $1,000 and made available to some lower-income families with children, even if they had no tax liability. Still, many low-income families (as well as some with high incomes) receive less than $1,000 per child in tax benefits. Moreover, because of differences in income, family composition, and employment status, nearly half of Blacks and 46 percent of Hispanics receive no or reduced benefits from the CTC because their incomes are too low. By comparison, only 18 percent of White children are in that category.

Policymakers are considering a variety of new tax credit proposals to expand health insurance coverage. Understanding how current tax subsidies work and their role in supporting employer-sponsored insurance (ESI) is important when designing such policies. This brief presents essential information about the structure and distribution of existing tax subsidies for ESI and the implications for new policy options.

As welfare reform moves families from reliance on welfare to reliance on work, child support and the Earned Income Tax Credit (EITC) play an increasingly important role in the financial well-being of low-income single parent families with children. The first section of this paper examines the effect of child support, the EITC, and the tax system on the relative well-being of low-income noncustodial parents and custodial families. The authors find that a low-income noncustodial parent must have earnings 50 to 100 percent higher than the custodial parent in order to pay child support and taxes and enjoy the same standard of living as the custodial family. Noncustodial parents receive little of the tax relief available to families with children, and typical state child support guidelines do little to redress this. The authors explore three options for expanding the EITC to greater assist low-income noncustodial parents who pay child support, and discuss two options for partially or fully funding this expansion.