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Proposals to Extend Estate Tax Favor Wealthy Over Lower- Income Working Families

The House and Senate Republican leaderships have each proposed tax packages that would extend for one year the lucrative estate-tax rules that were enacted as part of the compromise tax-cut legislation at the end of 2010.  Compared to President Obama’s proposal to reinstate the already generous 2009 estate-tax rules, the Republican leadership proposals would deliver an average of more than $1 million in tax breaks apiece to the three wealthiest of every 1,000 estates.

These proposals ignore the agreement of two years ago between the President and Congress, as our new analysis explains.  That’s because while they want to continue the estate-tax giveaway for the wealthiest Americans, Republican leaders also propose to terminate tax-credit improvements for working-poor and near-poor families and students.

Policymakers first enacted those improvements — to the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the American Opportunity Tax Credit — in the 2009 Recovery Act.  The 2010 legislation extended them through 2012.

Letting these improvements expire would deliver a financial blow to low- and moderate-income people:

  • Failure to extend the CTC improvements — worth more than $800 on average per affected family — would affect 8.9 million working families (with 16.4 million children) in 2013.
  • Failure to extend the EITC improvements — worth more than $500 on average per affected family — would affect 6.5 million working families (with 15.9 million children) in 2013.
  • A married couple with three children with earnings equal to the estimated 2013 poverty line will receive $1,934 less in EITC and CTC benefits combined. (Note:  this post has been revised to reflect that the married couple has three children.)
  • Ending the American Opportunity Tax Credit improvements will mean that many students will face a reduction in federal financial assistance even as college costs continue to rise.

Taken together, failure to extend the CTC and EITC improvements would affect more than 13 million working-poor and near-poor families (including nearly 26 million children) in 2013, the Institute on Taxation and Economic Policy estimates.  (The Treasury Department estimates that failure to extend all of the refundable credit improvements in the 2010 legislation — including the expansion of the American Opportunity Tax Credit improvements that defray a portion of higher education costs, as well as the EITC and CTC improvements — would affect 25 million families with incomes below $250,000.)

Click here to read the full paper.