Bramwell’s Lunch Beat: SOTU Roundup

Enhancing the EITC would encourage work and reduce poverty
During his State of the Union address on January 28, President Obama talked about making the Earned Income Tax Credit (EITC) more generous for nonparents and noncustodial parents.

According to an article by Matthew Yglesias of Slate, EITC currently offers a substantial economic boost to a population largely composed of working single moms and some married couples with kids, but very little for people who don’t have kids at home.

Yglesias agreed with a report from the Center on Budget and Policy Priorities, which said making EITC benefits more broadly available would do a lot to boost incomes in a way that encourages and rewards work and employment.

“They also think it might boost marriage rates, by boosting the incomes of male low-wage workers and making marriage and family formation more feasible,” the article stated.

Obama calls for expanding EITC for childless workers
In an article for the Wall Street Journal, Damian Paletta wrote that President Obama’s proposed expansion of the EITC could put it on a collision course with a complete overhaul of the tax benefit, which is being proposed by Senator Marco Rubio (R-FL).

“Earlier this month, Sen. Rubio said policymakers should rethink the effectiveness of the EITC and consider scrapping it in favor of different work incentives,” the article stated. “The Florida Republican called for ending the program and replacing it with a new ‘wage enhancement’ system that directs federal money toward low-income Americans in qualified jobs. He said this would give low-income Americans a steadier stream of money that they can use to plan and invest, rather than waiting for a payment when they file their taxes.”

Obama’s order to hike federal wages will lay a wet blanket on small businesses
During his speech to the nation, President Obama announced he will sign an executive order that will increase the minimum worker wage for federal contracts from $7.25 per hour to $10.10 per hour.

But John Tamny of Forbes wrote the federal wage hike would “harm the private entrepreneurial economy for luring more workers into federal employ. And it will erect yet another barrier to small business formation.”

“What must be stressed first is that this is bad for the small businesses that he claims to support,” the article stated. “To see why, it’s worth remembering what’s a blinding glimpse of the obvious: small businesses pay federal taxes either through the corporate tax, or through taxation of the individuals who own them.

“Small businesses and their owners will pay taxes that the federal government will then use to bid for workers against them,” Tamny continued. “If federal contracts can offer a higher minimum wage for workers, it means that small businesses, having funded the federal government’s largesse, will also in the bargain have to offer higher wages themselves in order to compete for workers. In short, small businesses will give the federal government the resources to raise their costs.”

Business owners divided on minimum wage
CNNMoney.com polled small business owners before the State of the Union address about the president’s proposal to increase the federal minimum wage. The survey found that small business owners were divided on the issue.

Nearly 49 percent of the 1,278 respondents said they do not support a proposal to raise the federal minimum wage from $7.25 to $10.10. About 44 percent said they support the proposal. The remaining 7 percent were unsure, according to an article written by Katie Lobosco.

“Many owners who supported a wage hike say they don't believe their workers can live on minimum wage and already pay them more,” she added. “About 95 percent of respondents agreed that $7.25 is not a living wage and only 7 percent said they pay any of their workers that hourly rate or the minimum set by their state, which can be higher.”

Will the ‘myRA’ retirement plan take off?
Another proposal made by President Obama Tuesday night was the introduction of a new type of retirement-savings plan, which the president called “myRA,” for workers who don’t have access to such plans through their jobs.

The plan is designed to create “starter accounts” that would help novice investors avoid some common pitfalls of retirement savings, according to a blog written by Matthew Heimer of MarketWatch.

But Jeffrey Levine, an IRA technical consultant with Ed Slott and Co. and MarketWatch RetireMentor, suggested that those without an employer-sponsored retirement plan not hold their breath waiting for myRAs to become a reality.

“I’m in favor of anything that can help people accumulate more money to enjoy during their golden years, but just because President Obama talks about it during his State of the Union address or includes it as part of his budget proposal doesn’t mean it’s going to happen,” Levine told MarketWatch.

Obama offering retirement-savings plan for workers
Mike Dorning and Margaret Collins of Bloomberg also provided insight on President Obama’s myRA plan and spoke to Brian Graff, CEO of the American Society of Pension Professionals & Actuaries, to get his thoughts on the president’s proposal.

“This isn’t earth-shattering stuff,” he said. “But it is a step in the right direction to get more people saving for retirement, which I would think is a bipartisan issue.”

According to the article, President Obama can establish the savings program under existing executive authority without new legislation. The president is expected to announce details of the plan on January 29.

“I don’t expect this to get a lot of pushback,” said Graff, who discussed the proposal in advance with US Treasury Department officials, Dorning and Collins wrote. He said it draws on an existing program that permits workers to purchase US savings bonds through payroll deductions and adds “a retirement twist.”

Obama’s myRA plan doesn’t go far enough to fix broken US retirement system
Forbes contributor John Wasik wrote: "President Obama indirectly admitted what US employees have long known: Retirement security stinks in this country and 401(k)s are not the answer.”

Wasik believes that retirement accounts should be universally available — you shouldn’t have to depend upon an employer to offer them.

“The problem isn’t that Americans don’t have enough ways to save for retirement – they have too many,” he wrote. “Look at the alphabet soup of plans from 401(k)s, 403(b)s, 457s to Roth IRAs. Why not consolidate them and make the tax breaks uniform through credits? Make a universal plan with low fees accessible to everyone – regardless of where they work. It’s not only a way to address inequality, it will improve retirement security for everyone.”

Obama renews corporate tax proposals
During his speech, President Obama intensified the push for his plan to exchange slashed corporate tax rates for a boost in infrastructure spending, wrote Bernie Becker of The Hill.

Under the plan, the top corporate tax rate would be reduced from 35 percent to 28 percent, while the infrastructure spending would be paid for with a “transition fee” on companies holding profits offshore, the article stated.

“GOP lawmakers also want to reduce the corporate tax rate – down to 25 percent – but say the president’s plan would leave out the businesses that pay taxes as individuals,” Becker wrote. “Speaker John Boehner’s (R-OH) office, in a Tuesday release, noted that the president had previously proposed corporate tax reform without the transition fee.”

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