Now that your 2014 taxes are done — stragglers aside — the experience just might make you ready to hop on the tax reform train to a less complex system. I am.
Complexity’s not the only problem, though, the Tax Alliance for Economic Mobility says. This amalgam of 30 progressive organizations (from AARP to the NAACP to United Way Worldwide) and tax researchers, maintains that America’s tax system is wildly skewed to favor the wealthy, with the top 1 percent of households receiving more benefits of wealth-building tax breaks than the bottom 80 percent combined.
Tax Reforms for Upward Mobility
So this coalition just handed the Senate’s tax-writing committee a list of 15 tax-reform proposals they say would significantly increase benefits for lower-income households and households of color and have a sustainable impact on their economic mobility. These new or reformulated tax breaks focus on increasing financial security, retirement savings and access to higher education and homeownership.
(MORE: United States of Financial Insecurity)
“Every one of the groups in the Tax Alliance for Economic Mobility has its own policy agenda, but we saw overlaps coalescing around the same set of ideas,” says Jeremie Greer, Co-Chair of the Alliance and Vice President for Policy and Research at the nonprofit CFED (Corporation for Enterprise Development), a member whose mission is to empower low- and middle-income households to build and preserve assets.
The Letter Congress Got
You can read about each of the Tax Alliance for Economic Mobility’s proposals in the letter the group sent to Sen. Mike Crapo (R-Idaho) and Sen. Sherrod Brown (D-Ohio), co-chairs of the Senate Finance Committee’s Savings and Investment Working group. But I’ll tick off seven here:
1. Support the federal Auto IRA policy In an Auto IRA — proposed by President Obama and recently enacted in Illinois — employers who don’t offer retirement plans must set up IRAs for employees and let workers fund them through automatic payroll deductions. The employees could opt out if they didn’t want to contribute.
“Auto-enrollment IRAs has been a bipartisan issue for a long time and isn’t a huge cost for employers,” said Greer. “This should be one of the easiest of our proposals to get through.”
(MORE: State of the Union and 50+ Americans)
2. Establish Children’s Savings Accounts This idea has been kicking around Congress since 2005. Every child in America would get a $500 account at birth, with an additional deposit for kids of low-income parents. The accounts would ultimately be used for major savings goals such as higher education, homeownership and retirement.
Similarly, the Alliance favors establishing a Roth at Birth account, letting parents contribute to Roth IRAs on behalf of their kids. Rep. Ruben Hinojosa (D-Texas) and Rep. Steve Stivers (R-Ohio) have introduced the Roth Account for Youths Savings Act along these lines, allowing annual contributions of up to $5,500.
“There could be some bipartisan support around the idea of creating savings opportunities for young people,” said Greer. “The question is how to pay for it. But if you do it within the construct of tax reform, you can find the money to pay for new priorities.”
3. Create a Financial Security Tax Credit The idea here — legislation introduced by Rep. Jose Serrano (D-N.Y.) — is to give lower-income families the same kind of savings incentives used by upper-income families by letting them contribute a portion of their tax refund to an eligible savings account with federal matching funds.
(MORE: Americans Get an "F" for Tax Knowledge)
4. Simplify the smorgasbord of savings incentives by turning those deductions into one Universal Savings Credit The tax break, conceived by the Center for American Progress, would be a percentage of a taxpayer’s contribution to an eligible savings account, regardless of income or tax liability, with federal matching funds for lower-income households.
5. Make the American Opportunity Tax Credit permanent This write-off of up to $2,500 in higher education costs is due to expire in 2018.
6. Also make critical provisions of the Earned Income Tax Credit and Child Tax Credit permanent These are credits designed to assist working families; the Earned Income Tax Credit has been dubbed the nation’s largest cash anti-poverty program. Some key features of that credit and the child tax credit are due to expire in 2017, though. If that happens, the Alliance says, 50 million Americans, including 25 million children, would lose part or all of their credit.
Aside from making the credits permanent, the Alliance also wants to expand the Earned Income Tax Credit to childless low-income workers, as President Obama and House Ways and Means Chairman Paul Ryan (R-Wisc.) have also proposed.
7. Cap the mortgage interest deduction or turn it into a credit Under current law, homeowners can only claim this deduction if they itemize and many low-income Americans don’t have enough deductible expenses to itemize. A tax credit would be a dollar-for-dollar tax savings; with a deduction, the higher your tax bracket, the greater the value of the write-off.
The Outlook for Tax Reform
Prospects for comprehensive tax reform this year or next are pretty slim due to paralysis in Washington and the 2016 presidential election. And President Obama hasn’t been pushing for it.
“While he hasn’t been as far out in front as some of us would like on comprehensive tax reform, he has done quite a bit to support some new ideas and proposals [like the myRA and auto-IRA] that could have a large impact on low-income working families.
But keep your eye on 2017. “Hopefully, after the election, we can really get to work reforming the tax code,” said Greer.
Next Avenue Editors Also Recommend:
- Best and Worst States for Financial Security
- 9 Changes That Will Affect Your Money in 2015
- Uncle Sam May Want to Aid Your Retirement
- The Pros and Cons of a Roth IRA
Next Avenue is bringing you stories that are not only motivating and inspiring but are also changing lives. We know that because we hear it from our readers every single day. One reader says,
"Every time I read a post, I feel like I'm able to take a single, clear lesson away from it, which is why I think it's so great."
Your generous donation will help us continue to bring you the information you care about. What story will you help make possible?