REPORT: The Impact of the Tax Framework on Middle Class Families

Framework Agreement on Tax Cuts and Unemployment Insurance:

As Experienced By Five American Families

Earlier this week, President Obama announced a framework that secures vital tax relief and
investments in our workers, while creating jobs and accelerating growth. The framework will
make a meaningful difference in the individual lives of tens of millions of American families.

The illustrative examples outlined below show how the framework will affect working families
and could be the difference that allows them to make ends meet.

Highlights of the Framework

• Extending the 2001/2003 Income-Tax Rates for Two Years. The framework would
end the impasse over taxes by extending the 2001/2003 income tax rates for two years and
reforming the AMT to ensure that an additional 21 million households will not be hit with a
tax increase. These measures provide relief to more than 100 million middle-class families.

• Key Administration Priorities to Support Job Creation and Economic Growth. In

addition to the 2001/2003 rates, the Administration secured several provisions that are vital
for our economy’s growth, which would not have been possible without this potential deal.

o An About 2% Employee-Side Payroll Tax Cut: The agreement includes an

about 2%, employee-side payroll tax cut for over 155 million workers – providing
tax relief of about $120 billion next year.

o Extension of Unemployment Benefits: The framework extends emergency

unemployment benefits at their current level for 13 months, preventing an
estimated 7 million workers from losing their benefits as they search for jobs.

o The Child Tax Credit: The $3,000 refundability threshold established in the
Recovery Act for the Child Tax Credit will be extended under the framework,
ensuring an ongoing tax cut to 10.5 million lower-income families with 18 million
children.

o The Earned Income Tax Credit: The framework continues a Recovery Act
expansion of the Earned Income Tax Credit providing up to $630 for families
with 3 or more children, and reduces the “marriage penalty” faced by working
married families. Together, these enhancements to the EITC will help 6.5 million
working parents with 15 million children.

o The American Opportunity Tax Credit: The new American Opportunity Tax
Credit – a partially refundable tax credit that helps more than 8 million students
and their families afford the cost of college – would be continued under the
framework.
 o 100 Percent Expensing: The framework agreement includes the President’s
proposal to temporarily allow businesses to expense 100% of their investments in
2011, potentially generating about $50 billion in additional investment in 2011.

Experience of Five Hypothetical American Families

Columbus, Ohio: A single mother working as a cashier with two children aged 5 and 8 has
an income of $16,900, the median salary in her profession in Ohio.

The middle class tax cuts renewed under the framework provide this family with a tax cut of
$620. In addition to this, the framework provides the family with about $1,720 in further tax
relief due to priorities the Administration insisted on in the package:

• Expanded Child Tax Credit: Under the agreement, she would receive $2,000 in child tax
credits, compared to about $620 if only the 2001/2003 tax cuts were extended – an
increase of about $1,380.

• A new 2% payroll tax cut: Due to the about 2% payroll tax cut for employees included in
the agreement, this family would receive about $340 in tax relief.

Des Moines, Iowa: A married couple – a child care worker (median salary in Iowa of
$17,800) and a butcher (median salary in Iowa of $22,300) – with three young children aged
5, 11, and 14 have a combined income of about $40,100.

The middle class tax cuts renewed under the framework provide this family with a tax cut of
$2,960. In addition to this, the framework provides the family with about $1,840 in further tax
relief due to priorities the Administration insisted on in the package:

• Earned Income Tax Credit: The family would receive $1,890 through the Earned Income
Tax Credit, compared to about $850 if only the 2001/2003 tax cuts were extended –
$1,040 in additional tax relief.

• A new 2% payroll tax cut: Due to the about 2% payroll tax cut for employees included in
the agreement, this family would receive about $800 in tax relief.

St. Petersburg, Florida: A married couple – a construction worker (median salary in Florida
of about $25,000) and a pharmacy technician (median salary in Florida of about $27,200) –
have a combined income of $52,200. They have two children, one in middle school, and the
other a college junior. The family pays tuition of $4,890, average in the state for a four-year
public school.

The middle class tax cuts renewed under the framework provide this family with a tax cut of
$1,640. In addition to this, the framework provides the family with about $2,560 in further tax
relief due to priorities the Administration insisted on in the package.
 • American Opportunity Tax Credit: The family would receive $2,500 in American
Opportunity Tax Credits (AOTC), compared to the $980 they might have received under
the Lifetime Learning Credit had the AOTC been allowed to expire – $1,520 in
additional tax relief. Last year, over 600,000 families in Florida benefitted from the
AOTC.

• A new 2% payroll tax cut: Due to the about 2% payroll tax cut for employees included in
the agreement, this family would receive $1,040 in tax relief.

Denver, Colorado: A married couple – one a machinist (median salary in Colorado of

$39,500) and the other a medical assistant (median salary in Colorado of $31,600) – have two
young children and an annual income of $71,100.

The middle class tax cuts renewed under the framework provide this family with a tax cut of
$2,140. In addition to this, the framework provides the family with:

• About $1,420 in further tax relief due to priorities the Administration insisted on in the
package – in particular, the about 2% payroll tax cut for employees.

Milwaukee, WI: A single mother, unemployed and looking for work for half a year as of this
month.

By extending emergency unemployment insurance through December 2011 – which the

Administration insisted on – the framework would preserve $15,000 in unemployment insurance
over the next year for this mother and her family. That’s the average unemployment insurance
benefit in Wisconsin for someone looking for work and receiving benefits for a year.

• In the absence of the agreement, this unemployed worker and her family would be
eligible for only 26 weeks of unemployment insurance – since the emergency
unemployment insurance program expired at the end of November. That means that this
family would be cut off if emergency unemployment insurance benefits weren’t
extended.

• In households, like this one, where the UI recipient is the sole wage-earner, UI benefits,
on average, make up 90 percent of income – meaning a single mother would, without this
agreement, tend to lose 90 percent of household income if UI benefits aren’t extended.

• Over the next year, in Wisconsin, more than 126,000 unemployed workers and their
families will see their benefits preserved because of this agreement. That’s not only good
for these thousands of families. That’s good for Wisconsin’s economy, since these
families would be able to spend more, creating more jobs. In fact, in Wisconsin, this
extension is estimated to save or create more than 11,000 jobs over the next year.