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Sen. Rick Scott’s Tax Proposal Would Push Millions of Americans Into Poverty
Sen. Rick Scott’s Tax Proposal Would Push Millions of Americans Into Poverty
Sen. Rick Scott’s proposed minimum income tax would have driven 18.5 million Americans into poverty in 2020.
In his 1964 State of the Union address, President Lyndon B. Johnson declared “unconditional war on poverty in America.” Two months later, in a separate speech, Johnson elegantly highlighted the moral weight of childhood poverty:
What does this poverty mean to those who endure it? It means a daily struggle to secure the necessities for even a meager existence. It means that the abundance, the comforts, the opportunities they see all around them are beyond their grasp. Worst of all, it means hopelessness for the young. The young man or woman who grows up without a decent education, in a broken home, in a hostile and squalid environment, in ill health or in the face of racial injustice—that young man or woman is often trapped in a life of poverty.
Sen. Rick Scott (R-FL), the chair of the National Republican Senatorial Committee, has proposed rolling back one of the most underappreciated aspects of the War on Poverty: tax cuts for the poor. In Scott’s “An 11 Point Plan To Rescue America,” released on February 22, 2022, he proposed raising taxes on more than half the population. The proposal provoked such a firestorm that he has since attempted to backtrack on it.
It is no wonder that Scott’s original plan is so unpopular. According to estimates presented below, had the plan been in place in 2020, it would have pushed 18.5 million Americans into poverty, including more than 7.2 million children. The child poverty rate would have been twice as high, and the number of poor seniors would have been 40 percent higher. Even before the COVID-19 pandemic, the increase in poverty would have been extreme: In 2018 and 2019, Scott’s plan would have increased child poverty by 46 percent and overall poverty by 21 percent. No matter the year, the Scott plan would have thrown millions of Americans into poverty, with the most extreme increases occurring during the direst economic times.
Progressive tax reform has made a huge dent in the poverty rate
The most comprehensive poverty rate that the government tracks is the Supplemental Poverty Measure (SPM). The SPM differs from more traditional measures in a number of ways, most notably by tracking how taxes and transfers affect people’s incomes. According to the SPM, 25 percent of Americans were living in poverty in 1967, compared with just 11 percent in 2019.* In 2020, the government’s strong fiscal response to the pandemic decreased the poverty rate even further—all the way to 8.3 percent—despite falling market incomes. (see Figure 1)
Progressive tax reform has played an important role in this decline. Before President Johnson entered office, low-income Americans were often pushed into poverty by the federal tax code. As part of the War on Poverty, President Johnson instituted a $300 minimum standard deduction, exempting Americans right at the poverty line from paying income taxes.
The creation of the minimum standard deduction was followed by the establishment of the earned income tax credit (EITC) and the child tax credit (CTC). The EITC supports low-wage workers, and the CTC supports families with children. Both programs have been expanded significantly since their inceptions and now pull millions of Americans above the poverty line. Although federal taxes still push a small number of Americans—mostly childless adults—into poverty, the tax code’s general orientation has shifted, with the overall net effect being to reduce poverty rather than increase it.
Sen. Scott’s plan would undo these decades of progress overnight.
The Rick Scott tax plan would have pushed 18.5 million Americans into poverty in 2020
By mandating that all Americans “pay some income tax,” Sen. Scott’s original plan would have eliminated refunds for people who receive more in credits than they pay in income taxes. (Such individuals still pay other taxes, including federal payroll taxes, state sales taxes, and local property taxes.) Because of how the EITC and the CTC are structured, Sen. Scott’s tax increase would mostly fall on low-income families with children.
Table 1 shows that the tax hike resulting from the elimination of these refunds would predominantly affect the poor.** In 2020, Scott’s plan would have raised taxes on 98.5 percent of poor Americans and 94.6 percent of nearly poor Americans—those just above the poverty line. On average, poor families would have owed an additional $1,624 per family member. By contrast, just 1.9 percent of Americans with incomes five times greater than the poverty threshold would have experienced a tax hike, and the group’s average increase would have been just $18 per person. (The estimated per-capita increases include people with no tax changes.)
Table 2 shows that in 2020, Sen. Scott’s proposal would have pushed an additional 18.5 million Americans into poverty. The number of children living in poverty would have more than doubled, and the number of poor adults would have risen 49 percent.
Table 3 shows similar effects for extreme poverty—defined as earning less than 50 percent of the poverty threshold. Sen. Scott’s plan would have thrown 5.8 million people into extreme poverty in 2020, with a disproportionately large increase for children. Whereas the actual extreme poverty rate was 3.3 percent, it would have been 5.1 percent under Scott’s plan.
Even before COVID-19, Scott’s plan would have hiked taxes on 85 percent of poor Americans
2020, the most recent year for which poverty data are available, was exceptional in two ways: 1) Market incomes were uniquely low due to the pandemic; and 2) The government’s nearly universal stimulus checks were classified as tax credits, meaning that the tax code played an unusually large role in ameliorating poverty.
Table 4 shows the distributional effects that Sen. Scott’s plan would have had before the pandemic, in 2018 and 2019.*** Had the Scott plan been in place, roughly one-third of Americans would have paid higher taxes; 85.4 percent of the poor would have paid higher taxes, while just 0.6 percent of those with the highest incomes would have been affected. The average per-capita tax hike would have been $391 for the poor, $439 for those near poverty, and less than $1 for people at or above 500 percent of their respective poverty thresholds.
Table 5, meanwhile, shows that a minimum income tax would have pushed an additional 8.3 million Americans into annual poverty in 2018 and 2019. More than half of these newly impoverished individuals would have been children; the child poverty rate would have climbed from 13.2 percent to 19.2 percent. Many working-age adults, and a small number of seniors, would have been pushed into poverty as well.
Finally, Table 6 shows the effect of the Scott plan on extreme poverty in 2018 and 2019. Under the plan, an additional 2 million Americans would find themselves living below half the poverty line. The increase in the extreme poverty rate would have been more than twice as large for children as for working-age adults and seniors.
Both before and during the pandemic, Sen. Scott’s plan would have thrown millions of Americans into poverty. In addition, poverty would have deepened significantly, with large decreases in after-tax income for Americans who were already below the poverty line.
Scott’s revised plan is harder to decipher than the original. It states that, “Able bodied Americans under 60, who do not have young children or incapacitated dependents, should work. We need them pulling the wagon and paying taxes, not sitting at home taking money from the government.” Without additional details, it is not clear precisely how the plan would address poverty or exactly how many people it would affect.
Despite the plan’s vagueness, the phrase “pulling the wagon and paying taxes” implies that Scott would still eliminate the refundable portions of the EITC and the CTC. It is therefore fair to assume that the revised plan would hike poverty by roughly the same amount as the original plan. Because the plan excludes Americans over age 60, as well as families with young children, there would be little to no increase in poverty among those groups, though Scott has not clarified what he means by “young children.” But the group experiencing the largest increase—families with non-young children—appears to be treated the same under both plans. And while the plan states that government should not “incentivize people to not work by paying them more to stay at home,” it’s actually working-class Americans who would be most harmed, since they are the ones who benefit from refundable tax credits. If the refundable portions of the EITC and the CTC were eliminated, a couple with two school-age children both earning the minimum wage would receive a tax increase of $8,353—cutting their after-tax income by 24 percent and pushing them over the poverty line.****
Scott’s plan would increase and deepen poverty
The EITC and the CTC provide important aid to low-income working families with children. By effectively revoking the refundable portions of these credits, Sen. Scott’s original plan would have dramatically raised the after-tax poverty rate, especially among children. This vision stands in stark contrast not only to that of President Lyndon Johnson but also to that of President Joe Biden. Biden’s American Rescue Plan expanded the CTC and—for the first time ever—made poor families eligible for the full CTC benefits normally given to middle- and high-income families.***** From July 2021 to November 2021, these reforms lifted 3 million to 3.8 million children out of poverty each month.
When it comes to child poverty, the contrast between the Biden plan and the Scott plan could not be any stronger.
Nick Buffie is a policy analyst on the Tax and Budget Policy team at the Center for American Progress.
* For two reasons, the statistics presented in Figure 1 and the preceding paragraph differ slightly from those presented elsewhere in this article. First, Figure 1 uses an “anchored” poverty threshold, which is better for comparing annual poverty rates over long periods of time. Second, these anchored data were last updated in June 2021; they do not reflect the Census Bureau’s February 2022 updates to the public-use population weight files. The findings presented elsewhere in this column incorporate the February 2022 update.
** This analysis uses the Supplemental Poverty Measure rather than the Official Poverty Measure (OPM). It models the Scott plan as a $10 minimum income tax on all families (regardless of family size). Family-level data on incomes and tax payments were taken from the Census Bureau’s Annual Social and Economic Supplement for 2018, 2019, and 2020. Person-level observations were then weighted according to the Census Bureau’s public-use files, which were updated in February to adjust for survey nonresponses during the pandemic.
*** The results in Tables 4, 5, and 6 are unweighted annual averages. The full findings, with separate results for 2018, 2019, 2020, and the 2018–2019 averages, are available for download here.
**** These calculations were done using the National Bureau of Economic Research’s TAXSIM application. A couple working full-time, year-round at the federal minimum wage of $7.25 per hour would jointly earn $31,060. Under the 2022 federal tax code, such a couple would pay $4,614.48 in payroll taxes and would receive $8,342.66 in net income tax credits. Their income after federal taxes would be $34,888.18 under the current system, $26,445.12 if the refundable portions of their credits were eliminated, and $26,435.12 if they were required to pay an additional $10 minimum income tax. In 2021, the official poverty threshold for a two-adult, two-child family was $27,479.35.
***** The American Rescue Plan also increased the EITC for childless workers. The nonpartisan Congressional Research Service describes the increases as follows: “For 2021, the legislation temporarily increases the rate at which the credit phases in, from 7.65% to 15.3%; nearly triples the maximum amount of the credit from $543 to $1,502; increases the income level at which the credit begins to phase out from $8,880 to $11,610 (and from $14,820 to $17,550 if married); and increases the rate at which the credit phases out from 7.65% to 15.3%.” The American Rescue Plan also made younger and older workers eligible for the credit for the first time. President Biden’s agenda would extend these EITC and CTC expansions to future years.
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Former Policy Analyst, Tax and Budget Policy