Panel Paper: Taxing the Poor: Recent Income Tax Proposals and the Poverty Rate in New York City

Saturday, November 9, 2013 : 2:25 PM
DuPont Ballroom H (Washington Marriott)

*Names in bold indicate Presenter

John Kramper, Todd Seidel, Daniel Scheer, Christine D'Onofrio and Mark Levitan, NYC Center for Economic Opportunity
The New York City Center for Economic Opportunity pioneered the use of the American Community Survey for creating a National Academy of Sciences measure of poverty in 2008.  The Center has been issuing annual reports on poverty in New York since 2010. A key feature of the “CEO poverty measure” is that it accounts for income and payroll taxes, as well as nutritional and housing subsidies in tally of the resources available to families to meet their basic needs.

Our 2011 and 2012 reports focused on the role of the safety net during the Great Recession, exploring the degree to which cash transfers, tax programs, and in-kind subsidies offset the recession-related decline in earnings.  We found that from 2008 (cyclical peak in local economy) to 2010 annual earnings per family plunged by 15 percent.  The decline for pre-tax cash (the resources counted in the official poverty measure) was 8 percent over that period.  CEO’s more inclusive income measure, by contrast, was statistically unchanged.  Our analysis also included estimates of the effect of the Bush and Obama Administration’s stimulus programs, particularly their expansion of SNAP benefits and refundable tax-credits.  We identified the effects of these by creating hypothetical poverty rates, what proportion of the City’s population would be poor in the absence of these expansions.  We found that without the expansions the City’s poverty rate would have risen to 23.2 percent in 2010.  The actual poverty rate in that year was 20.9 percent.

Our most recent work reflects a shift in the economic environment.  After a two-year decline employment rose, earnings stabilized, and CEO income increased sufficiently to offset the year-to-year rise in the poverty threshold.  Thus the CEO poverty rate was statistically unchanged from 2010 to 2011. 

An improving economy, however, is coincident with a shift in the policy environment, in particular the end of the recession-related expansion of tax credit programs. This paper will extend the analysis we present in our April 2013 report to consider the consequences for the New York City poverty rate of a variety tax policy scenarios.  We employ our tax model to develop hypothetical estimates simulating what the poverty rate would be given a number of changes in tax programs.  We begin with the expiration of the Social Security tax cut.  A second exercise estimates the effect of a failure to renew expansions to tax credit programs that are now slated to expire in 2017 (in particular the Child Tax Credit, EITC, and American Opportunity Credit).  A third part of the paper considers the effect of proposals to overhaul our existing system of credits for low-income families, from one that targets working families with children to distinct tax credit programs, one directed toward low-wage workers regardless of their family status, another for families with children regardless of their work status.  Simulations will develop poverty estimates for the total City population and relevant sub-groups such as, families with children, working families with children, and low-wage workers without dependent children.