Senator Kamala Harris proposed a bold tax credit to help low and middle income workers
As a senator, Kamala Harris proposed broad legislation to increase the incomes of low and middle income workers through her LIFT (Livable Income for Families Today), the middle class law. This proposal would provide an annual tax credit of up to $ 3,000 for singles and $ 6,000 for married couples.
While Harris introduced the LIFT Act long before the COVID-19 pandemic, three features make it particularly important in today’s tough economy: (1) Credit would be put in place quickly, allowing almost anyone low-income workers to qualify for the maximum benefit; (2) Workers without children at home would be entitled to the same maximum benefits as workers with children at home; and (3) The credit could be paid on a monthly basis.
The Tax Policy Center estimates that this proposed tax credit would provide approximately $ 2.7 trillion in benefits over the 10-year fiscal window, one of many recent proposals to extend children’s work or credit. The new LIFT tax credit would be on top of the existing Working Income Tax Credit (EITC) – it would not replace the EITC.
The LIFT Act tax credit is similar to the Working Income Tax Credit (EITC): benefits are added to income, peak, and then gradually disappear. The benefits of the LIFT Act are phased in at a rate of 100 percent – for every dollar of income, workers are entitled to a dollar of tax credit. This relatively steep introduction means that almost all working low-income workers will receive the maximum credit, even if they work part-time or part of the year. This is especially important when so many people have lost (or are losing) their jobs, thus working less than a full year in 2020, or when workers see their hours cut.
The LIFT Act tax credit also largely separates the amount of benefits from whether or not the taxpayer has children: singles are entitled to up to $ 3,000 in benefits, married couples are entitled to up to $ 3,000 in benefits. $ 6,000 in benefits. Therefore, the LIFT Act tax credit would provide 44% of its total profits workers with children at home – a much more equal share than the EITC, which pays about 97 percent of its benefits to families with children. Together, the EITC and the LIFT Act Tax Credit would provide about half of the total benefits to workers without children at home and the other half to workers with children at home.
Separating children from the benefit level not only allows childless workers at home to receive substantial benefits, but it would also make the administration of the LIFT tax credit simpler than the EITC. In most cases, the IRS would not need to determine which household the children lived in, which has always been difficult for taxpayers to comply with and leads to many EITC errors.
Finally, the LIFT Act tax credit could support in progress to workers who applied for the credit on a monthly rather than annual basis. It could help many low-income people meet ongoing needs and avoid costly short-term borrowing.
On the negative side, like all phased-out credits, the proposed tax credit would increase marginal tax rates for workers with incomes in the phase-out range, which could discourage some from working. However, research suggests this effect on labor force participation is likely to be small and will apply mainly to secondary earners of married couples.
Senator Harris’ LIFT Act was among the most important of the new tax credits to support work and families that lawmakers recently proposed. Will he be part of Biden’s own tax plan isn’t clear, but it demonstrates Harris’s long-standing commitment to increasing the incomes of working poor and middle income.