Senior Director of Federal Tax Policy
Amid the frenzy in Washington to enact broad stimulus legislation, Senate Republicans are also proposing to address a tax issue that far predates the current economic emergency: an error in the 2017 tax law that affects the restaurant and retail industries. If policymakers plan to help retailers and restaurant owners by fixing the error — and including the fix in the emerging stimulus legislation — they also should take the opportunity to provide much-needed help for the millions of low-wage workers who wait the tables and sell the products in those establishments.
Let’s back up.
In the 2017 tax law, President Trump and congressional Republicans meant to provide restaurants and retailers with “full expensing,” under which they could deduct the full cost of their investments in qualified improvement property immediately, rather than over many years. The law’s drafters, however, mistakenly left out the provision.
Now, in their new economic stimulus bill, Senate Republicans have included a provision to correct the error and enact the expensing proposal.
We have long argued that efforts to help retailers and restaurant owners by fixing the drafting error in the tax law should be accompanied by measures to help the low-wage workers who do the work in those establishments, a group that the 2017 tax law largely ignored.
The best way to do that would be to expand the Earned Income Tax Credit (EITC) and the low-income part of the Child Tax Credit. Together, these credits lifted 10.6 million people (including 5.5 million children) out of poverty in 2018 and made 17.5 million more people less poor, but they could do even more.
Roughly 26 million children in low-income families are partially or entirely shut out of the $2,000-per-child Child Tax Credit. Policymakers should make the credit fully available to these children in tax year 2020 — a benefit that families would receive when they file their taxes in early 2021, a time when the economy may well still be weak.
In addition, more than 5 million low-wage workers are taxed into, or deeper into, poverty because their EITC (if they get one at all) is too small to offset their federal payroll and income taxes. These workers should receive an EITC boost for tax year 2020.
To address these issues, policymakers should look no further than the Economic Mobility Act, which the House Ways and Means Committee passed last June. It includes temporary provisions to make the Child Tax Credit fully refundable — so that recipients can receive its full value even if it exceeds the income taxes they owe — and provide a meaningful EITC for workers who aren’t raising children at home. House Democratic leaders have proposed linking these measures to the restaurant/retail industry fix and enacting them together, a proposal that now makes more sense than ever.