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Details of a proposal to replace the personal exemption in the U.S. income tax with a $400 personal tax credit. Effects at various income levels; effects on the chronic poor.

With economic inequality on the rise in Canada, the federal government needs to consider innovative solutions. One possibility for improving the tax-transfer system involves refundable tax credits (RTCs). Making all tax credits refundable wouldn't require Ottawa to introduce new tax measures; the Canadian tax system already contains a mix of RTCs and NRTCs, so the government could simply continue its practice of designing tax credit programs to be refundable. Using Statistics Canada's Social Policy Simulation Database and Model, this paper examines the impacts and cost of converting NRTCs to RTCs, with and without an income exemption equal to 25 percent of the before-tax lowincome standard for a census family, the Census Family Low-Income Line. Under the Option Without Exemption (OW/OE), RTC recipients are taxed at a single rate of 15 percent, regardless of family size, right up to the Line. Under the Option With Exemption (OWE), RTC recipients are taxed at zero percent up to 25 percent of the Line and at a single rate of 20 percent, regardless of family size, up to 100 percent of the Line. The incremental cost of switching NRTCs to RTCs under the OW/OE is $6.6 billion, as additional benefits are provided to 6.4 million families — slightly less than 37 percent of all families. The cost of the OWE is $7.2 billion, as benefits flow to slightly more families — 6.45 million. However, the percentage of benefits reaching low-income families is much higher under the OWE (69 percent vs. 49 percent). Additionally, the OWE provides an average of nine percent more RTC benefits to low-income tax filers, making it clearly the superior option for poverty reduction. Moreover, the paper shows that alternative conversion schemes that set benefit reduction rates to differ by family size can further increase the benefits to low-income families at a lower overall cost. Such changes would elicit a labour-supply response in terms of a reduction in hours worked, and while the effect is smaller under the less expensive OW/OE, the difference between the two options is slight. This paper simulates the conversion of NRTCs to RTCs in comprehensive detail, besides providing practical advice on how such a shift would be funded. It offers valuable food for thought on an issue that is increasingly critical to Canadian society.

The ability of the refundable tax credit (RTC) to replace welfare programs aimed at families with children is assessed. RTC is defined as "a credit against income taxes or a cash payment to the extent that income taxes are not owed." A comparison of RTC & the current tax legislation illuminates RTC's ability to aid large families as well as the "hidden poor" with a net cost to government of $7 billion per year; if current administration proposals to increase the personal exemption to $2,000 per person are implemented, however, the net cost could reach $40 billion per year. 6 Tables, 1 Appendix, 51 References. R. McCarthy

On Aug. 15, 2021, Liberal Leader Justin Trudeau had his request to dissolve Parliament approved, triggering Canada's 44th federal election. On Aug. 16, 2021, the Conservative Party of Canada (CPC) released their full platform. In that election platform, the CPC promise to convert the Childcare Expense Deduction (CCED) into a refundable tax credit (CPC 2021, 23). In releasing that platform, the CPC have also publicly stated that they would cancel the existing signed childcare agreements that expand childcare supply and limit childcare fees (Tasker 2021). This note examines the proposed benefit schedule of the refundable tax credit and what it would mean for childcare affordability.

We replicate and extend a simulation model developed by Jonathan Gruber with the goals of illuminating Gruber's modeling of health insurance coverage under a tax credit and examining the sensitivity of the results to changes in the model's key parameters. The replications suggest that a refundable tax credit of $1,000 for a single individual or $2,000 for a family for private health insurance would reduce the number of uninsured individuals by between 17.5 and 28 percent and require new government expenditures of between $16.6 and $44 billion, of which about $7.4-$9.7 billion would be for coverage of previously uninsured individuals. These wide simulated ranges highlight the uncertainty inherent in modeling the effects of health insurance tax credits and suggest that progress on the issue of tax credits for health insurance will require improved evidence on the likely take-up rate of a credit.

A clear income gradient exists for the sport and physical activity (PA) participation of Canadian children. Governments in Canada recently introduced tax credits to alleviate the financial burden associated with registering a child in organized physical activity (including sport). The majority of these credits, including the Children's Fitness Tax Credit, are non-refundable (i.e., reduces the amount of income tax a person pays). Such credits are useful only for individuals who incur a certain level of tax liability. Thus, low-income families who may pay little or no income tax will not benefit from the presence of non-refundable tax credits. In this commentary, we argue that the non-refundable tax credit is inherently inequitable for promoting PA. We suggest that a combination of refundable tax credits and subsidized programming for low-income children would be more equitable than the current approach of the Canadian government and several provinces that are expending approximately $200 million to support these credits.

This article studies the impact of a non-refundable tax credit for public transit introduced in July 2006 in Canada. I find no evidence that this tax credit increased the number of trips made using public transit. There is, however, some suggestive evidence that it did induce commuters to purchase monthly passes. Finally, the article discusses the distributional effect of this tax credit.

The earned income tax credit is a refundable tax credit available to eligible workers earning relatively low wages. Under current law, the earned income tax credit is calculated based on a recipient's earnings, using one of eight different formulas, which vary depending on several factors, including the number of qualifying children a tax filer has and their marital status. This report discusses and analyzes legislative proposals introduced in the 113th Congress that propose modifying the earned income tax credit.