Impacts of Tax Cuts and Jobs Act on Philadelphia’s Residents in Poverty

Impacts of Tax Cuts and Jobs Act on Philadelphia’s Residents in Poverty

January 15, 2018
By Lauren Parker, Assistant Director of Planning & Evaluation
City of Philadelphia Office of Community Empowerment & Opportunity

Nearly 400,000 Philadelphia residents live in poverty, half in deep poverty . For the average Philadelphian household of three, poverty means sustaining a family on $1,700 a month pre-tax and deep poverty means impossibly doing so on $850 a month . Moving people out of poverty is perhaps the most critical issue facing Philadelphia today.

As the City of Philadelphia’s anti-poverty agency, the Office of Community Empowerment & Opportunity keeps a close eye on policy changes that could affect low-income residents. As such, we’re deeply concerned about the impact of the federal tax bill, the Tax Cuts and Jobs Act, signed into law on December 22.

This bill will do many things – perhaps most significantly it will create a $1.5 trillion deficit to the economy over the next 10 years by giving enormous tax breaks to corporations (which have seen record profits in the past few years) and mandating that low- and moderate-income households pay for those handouts. This growing deficit leaves me wondering if our Congress is teeing up an argument to cut social welfare programs to pay for these future deficits.

Based on projections by the Tax Policy Center, most households making less than $75,000 (three-quarters of households in Philadelphia) will see increases in the long-term under this new tax bill, with low-income families bearing the brunt. In 2027, when personal exemptions expire, a married couple making $30,000 with two children will have to shell out an additional $400 more than what they paid in 2017, which is significant.

Despite the purported failures, an additional 20 million people in our nation became insured under the Affordable Care Act . In Philadelphia, Medicaid expansion allowed 166,000 low-income people gain coverage and fewer people avoided health care because of cost . However, in 2019 this tax bill will eliminate a main incentive to become insured – the individual mandate. Without the mandate, an estimated 13 million people will drop their coverage . By doing so, fewer residents will get the preventative care needed to avoid more costly procedures down the line and premiums will rise, further dis-incentivizing health care coverage. This is significant to people in poverty because there is strong evidence that health insurance, both private and public, actually lifts people out of poverty by reducing out-of-pocket medical spending. This is especially true for children.

Philadelphia is often characterized as an affordable city – indeed, compared to our neighbors in New York City and Washington D.C., housing costs seem reasonable, especially for middle-income families. But for renters making less than $35,000, living in Philadelphia is, in real terms, unaffordable. An astounding 85% of these households spend more than 30% of their income on rent.

The Low-Income Housing Tax Credit (LIHTC) is the major vehicle for developing affordable housing in the country, often praised for its ability to stimulate private investment without subjection to the fancy of congressional appropriations. In Philadelphia alone, an estimated 24,650 residents live in units financed by LIHTC .

The Tax Cuts and Jobs Act will have a devastating effect on the production of LIHTC-financed housing. By lowering the corporate tax rate from 35% to 21% (the lowest rate since 1939), banks and investors will have less tax liability and less desire to seek out tax credits like LIHTC, making the market for tax credits much less competitive. This will leave affordable housing developers with less investment on the dollar to finance their projects.

The impact of the tax bill on low- and moderate-income individuals and families will be significant, but so will be the impact on our partners in the non-profit community that rely on charitable giving to stay afloat. Under H.R.1, the standard deduction will double, making individuals will be less likely to itemize their tax deductions, such as their yearly donations. The Tax Policy Center estimates that 21 million fewer taxpayers will itemize their charitable donations – a cut nearly in half . This is severe for the network of service providers and community-based organizations doing anti-poverty work that rely on donations to buffer their budgets.

While the congressional fight for the tax bill may be over, the impacts have yet to set in, so a fight is still to be had. Now is the time to strategize in our personal lives and within our institutions. We must ask ourselves how we can be more engaged political citizens and continue to pressure our elected officials to stand up for the literal survival of our low-income neighbors; to underscore the point that it is exactly systems and policies like the Tax Cuts and Jobs Act that perpetuate poverty and lead to cuts in social supports down the line. Let us not forget this moment. Let us not allow our representatives to forget this moment either.

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