Tax Reform and Who It Benefits: A Tax Day Reading List

While some prepare to file their taxes on or before April 18, others prepare to protest during Tax Day Marches, calling upon President Donald Trump to release his tax returns and commit to a fair tax system for all Americans.

Some see this day as an opportunity to take back the discussion on tax reform and the middle class. And others note that any recent tax reform discussions will still benefit the richest 1% more than the poor and middle class.

As discussions continue on how tax reform affects all Americans, below is a list of suggested readings.

Public Debt, Inequality, and Power: The Making of a Modern Debt State by Sandy Brian Hager

“[W]ho actually owns the debt inside America? Hager has done some fascinating and path-breaking research to answer that question, and concluded that the ownership pattern is surprisingly concentrated—and unequal—and this may have implications for how the entire debt debate develops in the coming years. This is an illuminating work that deserves wide attention.”—Gillian Tett, Financial Times

A free ebook version of this title is available through Luminos, University of California Press’s open access publishing program for monographs. Visit www.luminosoa.org to learn more.

 

How Big Should Our Government Be? by Jon Bakija, Lane Kenworthy, Peter Lindert, Jeff Madrick

“An Important new book . . . goes deep into this question of government footprint and growth.”—Jared Bernstein, The Washington Post

“If you would like a low-key, reasonably argued, nonideological discussion of the economic role of the government in the United States, one based on facts and on research using the facts, this is just the book for you.”—Robert Solow, Nobel Laureate in Economics and Professor Emeritus at the Massachusetts Institute of Technology

 

Hollowed Out: Why the Economy Doesn’t Work without a Strong Middle Class by David Madland

“[I]t is time to mount a political challenge to the economic theories—namely, supply-side, or trickle-down economics—that have provided cover for the unparalleled growth in inequality over the past three decades. . . . A dramatic and clearly delineated outline of ‘how the stage has been set for transformative political conflict.'”—Kirkus

“When will we learn that an economy that works just for the wealthy just doesn’t work? David Madland explains with clarity and eloquence why trickle-down economics can’t keep its promise of rapid growth—and why a more just economy will provide better results for everyone.”—E. J. Dionne Jr., Brookings Institution, Georgetown University, and author of Our Divided Political Heart

Falling Behind: How Rising Inequality Harms the Middle Class, With a New Preface by Robert Frank

“The arguments here are powerful and multidisciplinary. The crux is explaining how rising economic inequality causes harm to the middle class. It also offers a policy reform—a progressive consumption tax—that serves to mitigate this harm. This is a gem of a book.”—Lee S. Friedman, University of California at Berkeley

“Robert Frank explains exactly how and why an unequal society leaves almost all its members worse-off, including most of those who objectively are doing ‘better.’ This is a very important application of economic logic to modern America’s main domestic problem.”—James Fallows, The Atlantic Monthly

 

It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World by Sarah Halpern-Meekin, Kathryn Edin, Laura Tach, Jennifer Sykes

“An important contribution to poverty policy scholarship.”—Vanessa D. Wells Journal of Sociology & Social Welfare

It’s Not Like I’m Poor inspires one to wonder whether there are existing educational interventions that, with changes to their delivery method, might lead to better experiences and outcomes for children and families… Not only did their work dispel many of the negative stereotypes of welfare -reliant mothers and present an honest picture of the financial realities these families faced, it also helped forecast the relative hardships families would face when the effects of welfare reform took shape.”—Celia J. Gomez Harvard Educational Review

Taxing the Poor: Doing Damage to the Truly Disadvantaged by Katherine S. Newman and Rourke O’Brien

“An impressive volume that makes a straightforward, compelling, and well-documented point. This is an important book—for lots of reasons.”—Daniel T. Lichter, Cornell University

Taxing the Poor makes extremely important points that are not now—but must be—part of the American discussion of poverty and social policy. The authors make these points with fascinating details on the history of how we got to this place. Bravo to Newman and O’Brien for thoroughly laying out a politcal economy of taxation.”—Robin Einhorn, author of American Taxation, American Slavery

 

The Student Loan Mess: How Good Intentions Created a Trillion-Dollar Problem by Joel Best and Eric Best

“Probably the best and clearest book on the United States’ complex student debt problem.”—Tyler Cowen TLS

“In this fully documented—but highly readable—study, Joel and Eric Best parcel out the blame among politicians, educational institutions, and the students themselves. Importantly, they propose timely actions to take ‘before this latest financial bubble bursts.'”—Richard J. Mahoney, Weidenbaum Center on the Economy, Government and Public Policy, Washington University, St. Louis

“Edgy and astute. . . . This engaging book will appeal to a broad audience of interested general readers.”—John Iceland, Penn State University


The EITC Safety Net

By Kathryn Edin

Kathryn Edin
Kathryn Edin, author of It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World

Tax season is upon us, apparent in the stream of H&R Block TV commercials (“Get your billions back America!”), the line on many middle-class families’ to-do lists—“find tax docs”—that keeps getting pushed to next weekend (until a mad scramble as the April 15th deadline looms), and the sign spinners drawing attention to Liberty Tax, Jackson Hewitt, and many a local store that pops up this time of year. While some of us approach tax time with a sense of dread—paperwork, possible audits, paying taxes, oh my!—others look forward to tax time as “better than Christmas.” Why? Because filing taxes means the arrival of the much-anticipated tax refund check, a source of financial relief and hope for many lower-income working parents.

A single parent of two children who works full time, all year, at a minimum wage job is eligible for an Earned Income Tax Credit of $5,460. Those who earn much less or much more are eligible for a smaller credit (with the credit size shrinking until it disappears for those earning around $44,000 a year). On top of this, the parent’s refund check may also include the refundable portion of the Child Tax Credit and the return of any over withholding from her paychecks. And if she lives in one of the 25 states that has a state EITC, she’ll also be getting a smaller state refund check too. The value of the EITC alone is worth more than a quarter of her annual earnings. The EITC pushes more than six million families above the poverty line each year. It’s no wonder that tax time is so eagerly awaited.

This year marks the 40th birthday of the EITC and, in the midst of dueling tax proposals from the political right and left, it’s a good time to examine how the EITC is working. At this policy’s creation in 1975, the intention was to reduce the tax burden on lower earners, with a maximum benefit of a few hundred dollars. Over the years, Congress has increased the income eligibility limits and benefit levels, transforming this income tax offset into a major government assistance program. Most recently, as part of the American Recovery and Reinvestment Act of 2009, Congress raised the income limits, particularly for married couples, and made higher benefits available to larger families (those with three or more children); these provisions will sunset in 2017 unless there is Congressional action.

As we reflect on the EITC’s past and future, we must be mindful of both its successes and shortcomings. Through the government, we support lower-income workers like never before. But we’ve left behind many others. Over the past two decades, the number of families living in deep poverty—living on $2 per person per day—has risen steeply. While we do more to reward work, those who are without work are in a difficult situation, without either a wage income or the support of work-contingent benefits like the EITC. Further, many workers struggle with variable work schedules, unable to get the dependable hours or full time work they desire. These aren’t all problems the EITC can solve, although some creative thinking is occurring. There are policy experiments underway and proposals on the table that consider other ways of expanding the EITC program to those it currently does not reach, such as childless workers and noncustodial parents. We need to evaluate what we know about the EITC to make informed decisions about continuing the ARRA expansions of the EITC and pursuing extensions of the EITC to new groups.

It's Not Like I'm PoorOur research demonstrates that the EITC provides an essential source of financial and psychological relief to lower-income working parents. After scraping by for most of the year, the arrival of tax season means being able to meet all of the family’s needs and even indulging in some of its wants too. Although they are cash-strapped for most of the year, parents use their refund checks in ways most Americans would deem financially responsible: paying current expenses (rent, groceries, child care), getting caught up on debts (medical bills, student loans, credit card bills), buying some big-ticket items (used cars, furniture, home improvements), putting some away in savings, and indulging in a few simple luxuries (birthday presents for the kids, a meal at a sit-down restaurant, a barbeque for the extended family). Though parents only allocate approximately 10% of refund dollars to this last category of “treats,” the meaning this spending has to them is huge. They get to be “real Americans” and give their children the feeling of being “ordinary kids.” In a consumer culture such as ours, purchases such as these can be of enormous importance. And there are two other impacts of the EITC that we see in our study, one financial and one psychological.

Families are able to use their refund dollars to build a personal safety net for themselves. By paying down debts, accumulating some assets, and stockpiling food and other items at tax time when their bank accounts are relatively flush, they’re better able to weather the tough times that inevitably arrive later in the year, as unexpected expenses or drops in income arise. And what is perhaps most remarkable is that all of these benefits come from a government assistance program. The reason this is so noteworthy is that many such programs provide financial support but at a psychological price. Applying for cash welfare or food stamps (now called SNAP) carries the connotation that you are a dependent, a taker, a drain on society. The EITC, through its connection to work and parenthood and its delivery through the complex tax system, is more incorporating than alienating. It helps, as President Clinton said, to “make work pay.” It emphasizes those roles of responsible parent and provider that are valued and rewarded in our society. For families benefiting from the EITC, there is no trade-off between dignity and a hand up. As you search for your W-2s and 1099s, that’s certainly something to be thankful for this tax season.

 

Kathryn Edin is Distinguished Bloomberg Professor in the Department of Sociology and the Bloomberg School of Public Health at Johns Hopkins University. She is the coauthor of It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World, Doing the Best I Can: Fatherhood in the Inner City, Promises I Can Keep: Why Poor Women Put Motherhood before Marriage, and Making Ends Meet: How Single Mothers Survive Welfare and Low-Wage Work.