New study recommends extending improvements to the Child Tax Credit, Earned Income Tax Credit

Policies adopted during the Obama administration have significantly lowered tax liabilities for lower-income Americans. A Washington-based advocacy group today issued a study arguing for the Obama policies to be extended while allowing Bush administration-era tax cuts for the wealthiest Americans to expire.

Of particular interest to the Colorado Fiscal Policy Institute is a possible extension of improvements to the federal Child Tax Credit (CTC) and the federal Earned Income Tax Credit (EITC). The advocacy group, Citizens for Tax Justice, calculates "if the improvements in the CTC and EITC are not made permanent, the poorest three fifths of taxpayers would lose $124 of tax cuts on average."

Improvements to those tax credits were part of the American Recovery and Reinvestment Act of 2009, commonly called the Recovery Act. The Fiscal Policy Institute last week issues papers analyzing the economic effects in Colorado of the CTC, the EITC and the Recovery Act's broader tax provisions.

These tax credits are particularly valuable to low-income families because they are refundable. That means working families benefit from the credits even if they have no tax liability.

Colorado, by the way, has a state-level Earned Income Tax Credit that's based on the federal credit. The state credit has been dormant for years, though, because lawmakers have declined to fund it. Colorado lawmakers this year passed a measure setting the EITC has the first refund mechanism when the state is required to give money back to taxpayers because of a surplus. Numerous studies have found the Earned Income Tax Credit is one of the most effective anti-poverty policies around.

The bulk of the Citizens for Tax Justice report is focused on a comparison of new tax proposals by the Obama administration and Republicans. It finds in Colorado the bottom 60 percent of taxpayers would pay $89 more in 2011 under the Republican approach than they would under Obama's proposal. The top 1 percent of Colorado taxpayers, meanwhile, would pay $53,723 less in 2011 under the Republican approach than they would under Obama's proposal.

Rolling back the tax cuts for the top 2 percent of taxpayers while maintaining the cuts for lower-income taxpayers, as the Obama administration has proposed, is a reasonable way of funding other priorities and setting our country on a path to a more secure future.