1. Making Taxes and Welfare Work Together Law and Society Association Panel on Thinking Big About Tax Policy Denver, Colorado May 30, 2009 by Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma jforman@ou.edu

2. Income Inequality Gini coefficient Interdecile ratio P90/P10 Interdecile ratio P50/P10 LevelRankLevelRankLevelRank Australia0.30163.95152.0918 Canada0.32184.12172.1420 Mexico0.47308.53302.8630 Sweden0.2322.7921.721 United Kingdom0.34234.21181.9915 United States0.38275.91272.6929 OECD-300.31..4.162.09.. 2 http://dx.doi.org/10.1787/420888675468

3. Income Inequality, cont. Interquintile share ratio (S80/S20) Interdecile ratio (P90/P10) Australia4.84.0 Canada5.24.1 Mexico12.18.5 Sweden3.32.8 United Kingdom5.44.2 United States7.95.9 OECD-305.34.1 3 http://dx.doi.org/10.1787/421061637532

4. Inequality and Redistribution Country Gini Before Gini After Poverty Before (50% of median income) Poverty After (50% of median income) Tax %GDP Social Spending %GDP Australia0.460.328.612.430.617.1 Canada0.440.3223.11233.316.5 Mexico n/a0.472118.420.67 Sweden0.430.2326.75.349.129.4 United Kingdom0.460.3426.38.337.121.3 United States0.460.3826.317.12815.9 OECD0.450.3126.410.635.920.5 4

5. 5 Inequality and Child Poverty in Selected Countries

6. 6 Social Spending and Child Poverty in Selected Countries

7. Redistribution through Cash Transfers & Taxes Transfers to lowest quintile Taxes from lowest quintile Net transfers to lowest quintile Australia5.90.25.8 Canada3.50.62.9 Korea0.90.50.4 Sweden8.52.85.7 United Kingdom4.60.44.1 United States2.30.41.9 OECD-235.41.24.2 7 http://dx.doi.org/10.1787/422058728151

8. 8 “Making Work Pay” Credit  New refundable credit  I.R.C. § 36A (ARRA §1001)  Will cut taxes for working families  Up to $400 ($800 if MFJ) Computed as 6.2 percent of earned income up to $400 ($800 if MFJ)  Phase out for taxpayers with modified AGI > $75,000 ($150,000 MFJ)  Claim credit on 2009 tax return  Tax withholding decrease

9. 9 Earned Income Tax Credit (EITC) Increase  New credit percentage for 3 or more qualifying children I.R.C. § 32 (ARRA § 2002) Temporary increase 2009 & 2010 Computed as 45% of earnings (up from 40%)  Maximum credit increase = $5,028 to $5,657  Maximum AGI increase = $43,415 to $48,279

10. 10 Child Tax Credit  $1,000 per qualifying child I.R.C. § 24 (ARRA § 1003)  Temporary expansion of eligibility for refundable credit  More lower income families qualify: 2008 – threshold amount was = $8,500 2009 – threshold amount = $3,000 2010 – threshold amount = $3,000

11. Poverty Levels and Net Federal Tax Thresholds, 2009 Unmarried individual Single parent with 1 child Married couple with 2 children Married couple with 3 children 1. Poverty levels$10,830$14,570$22,050$25,790 2. Simple income tax threshold (before credits) $9,350$15,650$26,000$29,650 3. Income tax threshold after credits $13,391$32,317$50,233$60,550 4. Employee payroll tax threshold $0 5. Combined income and payroll tax threshold $9,336$25,667$38,592$43,743 11

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13. Taxes at Poverty Level, 2009 13 Unmarried individual Single parent with 1 child Married couple with 2 children Married couple with 3 children 1. Poverty levels$10,830$14,570$22,050$25,790 2. Income tax at poverty level (after credits) -$452-$4,443-$7,695-$8,537 3. Employee Social Security & Medicare tax at poverty level $829$1,115$1,687$1,973 4. Combined income and payroll tax at poverty level $377-$3,328-$6,008-$6,564 5. Combined tax as a percent of income at poverty level 3.5%-22.8%-27.2%-25.5%

14. U.S.: Share of Household Income & Gini Index, 2005 Market incomeDisposable income Quintiles Lowest1.504.42 Second7.269.86 Middle14.0015.33 Fourth23.4123.11 Highest53.8347.28 Gini Index0.4930.418 14

15. Canada  Canada Child Tax Benefit (CCTB) monthly payment to families w/ children  Universal Child Care Benefit (UCCB) $1,200 per year for children under 6  Working Income Tax Benefit (WITB) refundable tax credit of 25% of earned income in excess of $3,000, maximum of $925 for individuals ($1,680 for single parents and couples) 15

16. United Kingdom  Child Benefit £20/week oldest child; £13.20 others  Child Tax Credit £545 per year/family+ £2,235/child  Working Tax Credit £1,890 per year per worker + 80% × child care, up to £175/week for 1 child; £300/week for 2+ children 16

17. Australia  Family Tax Benefit Part A: $4,631.85 child under 13; $5,818.40 child 13-15; etc. Part B: extra help for low-income single parents & families with one main income  Child Care Tax Rebate  Baby Bonus $5,000 ($384 every fortnight for 6 months) 17

18. Dependent Exemption (since 1917; $3,650 in 2009) 18 Roberton Williams, Federal Taxes and Children (Urban Institute, April 16, 2009), Figure 1, http://www.taxpolicycenter.org/events/upload/Thurs-Child-handouts-large.pdf. http://www.taxpolicycenter.org/events/upload/Thurs-Child-handouts-large.pdf

19. About the Author  Jonathan Barry Forman (“Jon”) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law, where he teaches courses on tax and pension law.  Professor Forman is also Vice Chair of the Board of Trustees of the Oklahoma Public Employees Retirement System (OPERS) and the author of Making America Work (Washington, DC: Urban Institute Press, 2006).  Prior to entering academia, Professor Forman served in all three branches of the federal government. He has a law degree from the University of Michigan and master’s degrees in economics and psychology.  Jon can be reached at jforman@ou.edu, 405-325-4779jforman@ou.edu  These slides at www.law.ou.edu/faculty/forman.shtmlwww.law.ou.edu/faculty/forman.shtml 19