Senior Director of Federal Tax Policy
The House Republican tax package making “technical corrections” to the 2017 tax law repeats one of the law’s fundamental flaws: cutting taxes for wealthy shareholders and other business owners while largely ignoring low-wage workers, whose wages have stagnated in recent decades. One of the package’s “corrections” helps restaurant and retail owners while doing nothing for millions of their workers.
The provision would give these business owners “full expensing,” under which they can deduct the full cost of property improvements immediately rather than over several years. The 2017 law’s authors intended to include it in their bill but mistakenly left it out of the hastily drafted legislation. After a lobbying campaign by the restaurant and retail industries, House Republican leaders included it in their corrections package. But the package leaves out measures that would help many workers in these businesses and their families.
Consider the Child Tax Credit (CTC). The 2017 law included a highly touted $1,000-per-child increase in the CTC (to $2,000 per child) but was drafted such that millions of low-wage working parents actually received far less:
Low-income working families with 11.4 million children received a token CTC increase of $75 or less. Some 3.0 million of those children have parents who work in the restaurant or retail industry.
Modest-income working families with another 15.0 million children got a CTC increase of more than $75 but less than the full $1,000-per-child increase. Some 3.3 million of those children have parents who work in the restaurant or retail industry.
Under the 2017 law, the CTC doesn’t start to phase in until a tax filer has more than $2,500 in earnings, and the amount that a family can receive in the form of a refund check from the federal government (if the value of its CTC exceeds the federal income tax it owes) is limited to $1,400 per child, or $600 below the advertised maximum. Policymakers could fix these flaws and move toward making the CTC fully refundable.
Or consider the Earned Income Tax Credit (EITC) for low-wage workers who aren’t raising children in their home — the lone group that the federal tax code actually taxes into (or deeper into) poverty. A long-standing proposal from former House Speaker Paul Ryan to boost the EITC for these workers would take a significant step toward addressing this problem, but it wasn’t in the 2017 tax-cut law. (Indeed, the 2017 law reduces the inflation-adjusted value of the EITC over time, including its small credit for childless workers, by adopting a different measure for adjusting tax brackets and certain tax provisions each year to account for inflation.) Incoming House Ways and Means Committee Chairman Richard Neal and Senate Finance Committee member Sherrod Brown have introduced a proposal to strengthen the EITC for these workers, which we estimate would benefit 16.2 million childless workers, including 4.7 million restaurant and retail workers.
To be sure, the authors of the 2017 tax law omitted full expensing for restaurant and retail business owners inadvertently, while omitting these CTC and EITC improvements for low-wage workers by design. But if ignoring these workers was a major mistake the first time, as it surely was, then ignoring them again would compound the error.