Wonky Word Wednesdays: Tax Credits and Tax Deductions

Tax credit or tax deduction? Do you know the difference?

I decided to pick this issue because at MBPC, we talk a lot about the Earned Income Tax Credit (EITC) and how it is one of the most effective ways to help working, low-income families. Don’t worry, the EITC will be explained in a future post – one step at a time, folks.

Every year when we do our taxes, people have to decide if they will use the standard deduction or the itemized deduction, which includes home mortgage interest and charity donations. Then we also have to factor in our tax credits. But do you know what’s what?

Here’s a quick comparison of what a tax deduction is versus what a tax credit is.

Tax deductions reduce your taxable income, that is, the amount of income the government will use to calculate your income taxes. One example is the charity deduction. Let’s say you make a $1,000 donation to a worthwhile charity, say the Montana Budget and Policy Center (hint, hint). This deduction reduces your taxable income by $1,000. The amount of actual tax savings will depend on what tax bracket you are in. If you are in a 15% tax bracket, a $1,000 tax deduction will save you $150 in taxes.  If you are in a 40% tax bracket, this same $1,000 tax deduction will save you $400 in taxes.

On the other hand, tax credits are applied directly to your tax liability – in other words – what you owe. So if you have a tax credit like adopting a child, buying a first home, or home office expenses, those reduce your tax bill, dollar for dollar. For example, if you qualify for the full child tax credit of $1,000, you will save $1,000 in taxes.  

A tax credit has a bigger impact on your tax liability than a tax deduction of the same amount.

But wait, there is more. deduction

Since this is a Wonky Word post, I thought I would wonk out (yes I am using it as a verb) on this a bit more.

Did you know that a child can be a tax credit and a tax deduction? If your income is low enough to qualify you for the Child Tax Credit – your new bundle of joy is a credit. If it does not, then you can still claim little Bobby or Sally as a dependent, which is a tax deduction!

Also, some tax credits are refundable. That means if the amount of taxes you owe is less than the credit, you will get a refund. As I mentioned earlier, the Earned Income Tax Credit is an example of a refundable tax credit. But we’ll save that for another week.

Wow, I could go on and on.  Thanks for checking into this week’s Wonky Word Wednesday. Tax credits and deductions impact all of us. I’m glad we all know the difference now.

I hope you will check back each Wednesday for more wonky words. If you have suggestions, email me at tjensen@montanabudget.org or post something to our Facebook page.

Honoring Montana’s Veterans

Yesterday, we honored and remembered the veterans who have given so much to protect our freedom. We would like to extend a whole-hearted thank you to those who have served.

One of the ways we can honor our Montana veterans is by ensuring they always have access to quality, affordable health care by expanding Medicaid.

Did you know?

  • Montana has the highest percentage of uninsured veterans in the nation – 17.3%.
  • 4,400 uninsured veterans plus 2,500 of their family members in Montana would qualify for Medicaid expansion.
  • 2,600 underinsured veterans (those who only have access to VA care) would also qualify.
  • There is only one Veterans Affairs (VA) hospital in Montana, making it difficult for many Montana veterans to receive health care at one.
  • Uninsured veterans often have significant health issues that need treatment – one-third have at least one chronic health condition.

Montanans have always been proud to serve those who have honorably served us. Ensuring that these men and women who have worn our country’s uniform can receive the health care they need, while also bringing jobs to the state and boosting our economy, is the right choice for Montana.

To learn more about how Medicaid expansion would benefit Montana’s veterans, be sure to read MBPC’s report here: Medicaid Expansion Would Benefit Montana Veterans.

Wonky Word Wednesdays: Mills

You might have heard us mention the term “mills” a few times lately. Between local school mill levies, and the Charter Communications ballot initiative that could dramatically impact local mills and taxes, property taxes are an important topic right now. This week we are undertaking our first by request Wonky Word: mill.

If you are a homeowner, you are probably familiar with mills because they are a type of property tax. From there, most of us know they have something to do with schools and other local needs like fire departments. We know we are asked to vote on mill levies occasionally, and usually there is a number associated with it, say a 5 mill levy. When we vote, the ballot typically informs us about much it would cost us if our house was worth $100,000. After that, I would assume that is where the knowledge ends.  At least that is where mine ends.

So what is a mill? A mill, from the Latin mille meaning thousand, is 1/1000 of a dollar or 1/10 of a penny. One mill generates $1 in revenue for every $1,000 in taxable value. Seems simple right?

Well, the big trick is the “taxable value” part. In order to get “taxable value”, the Department of Revenue determines the market value of the property (how much the home is worth). For residential property, a portion of this value is then exempt (called the homestead exemption), and remaining amount is called the taxable market value.  Then, the state legislature determines what portion of the taxable market value will be subject to tax. This tax rate is applied to that taxable market value. That gets us the taxable value of the property. For example, let’s say my home has a taxable market value of $100,000, and the state legislature has set my property tax rate at 3%. The taxable value of my home is $3,000.

When my local school board asks me to vote for a mill levy, one mill would be 1/1000 of the $3,000 of taxable value. Let’s say the school board is asking for a 6 mill levy to help build a new elementary school. The levy is applied to the taxable value of property at a rate of 6/1000,  or .6%. The calculation for this would in our example be:

$100,000 x 3% = $3000 (taxable value)

$3,000 x .6%= $18 (cost of the 6 mill levy)

In total, the state imposes five different mill levies totaling 101 mills. In addition to the state mills, local cities and counties apply mill levies to the property within their jurisdiction to help fund local government operations. The legislature sets the maximum millage authority for these local taxing jurisdictions. In 2012, an average of 548 mills was applied to all classes of property in the state. In sum, property taxes comprise about 12% of our state and local revenue.

Phew! That might have had a few wonky words in it. But this is what I hope you will take away: local levies are an important part of our tax code, and critical to providing essential public services like education inour communities. 

I hope you will check back each Wednesday for more wonky words. If you have suggestions, email me at tjensen@montanabudget.org or post something to our Facebook page.

Michele’s Story: A Woman Caught in the Coverage Gap

When we talk about Medicaid expansion, often we focus on the numbers. 70,000 Montanans who would be able to access affordable health care. $5.4 billion in federal funds to boost our economy. 12,000 jobs created. $1.84 million dollars lost every day we wait. 

But those numbers don’t tell the whole story.

They don’t tell the story of what it is like for the tens of thousands of hardworking Montanans who are unable to afford health insurance. 

“I’ve done what everyone does in Montana. I’ve made a living; no matter what. I’ve been a logger; I’ve cut meat. I’ve owned my own semi, I own my own slaughterhouse. I always do whatever it takes to make a living. I haven’t had health insurance for five years now.”

This is Michele’s story. The story of one of our neighbors. The story of someone who needs Montana to expand Medicaid. Listen to her story here. And be sure to share it with your friends and family who are interested in knowing the whole story on Medicaid expansion. 

Congrats, grad! Now here’s the bill.

It’s graduation season, and we would like to extend a big congratulations to all the college graduates earning their diplomas this month! A college degree – whether an associate’s, bachelor’s or advanced degree – is a solid investment for future lifetime earnings. But that lifetime investment is getting harder for many students to obtain.  Nationwide, we hear about more students financing their college education through loans and being saddled with debt when they enter the workforce. But what does this problem of student debt look like in Montana?

Compared to colleges and universities in neighboring states, Montana’s tuition levels have stayed relatively low.  The average tuition and fees for an in-state freshman at UM or MSU is $6,399, over $1,500 less than the average for schools in the rest of the region.  While the tuition and fees paid by Montana students have increased by 55% in the past decade, that is a lot less than the 110% in other states.  

ScholarshipsHowever, Montana students have higher debt loads than the national average.  In 2012, almost two-thirds of Montana students took out loans, with an average total debt of $26,440 for a baccalaureate degree. But here is the key figure you need to pay attention to – although tuition at UM and MSU has increased by 11.5% since 2008, debt load for Montana students has increased by a much larger amount – 25%. Debt is a growing problem for Montana students.

So why has college debt increased at a greater pace than tuition? 

Part of the reason is that Montana has failed to keep up in providing need-based aid to lower-income students.

Additionally, a recent report by the Brookings Institute notes that while a portion of rising student debt can be attributed to increased college costs, that doesn’t entirely explain the increase.  There are other reasons students are incurring more debt. Not surprisingly, the economic downturn has played a large role. Additionally, lower wages for workers have necessitated more families finance college costs through loans. 

What does higher college debt mean for Montana students? 

There is no question that a college education still produces dividends for the future.  But the trend of taking out more debt to attend college can impact career choice and financial decisions later in life.  Students with higher debt are less inclined to take jobs in government and public service jobs.  Brookings also notes that, recently, students with high debt burdens tend to have lower credit scores, making it more difficult to buy a home.  The report shows that homeownership rates of 30 years olds with student debt has fallen compared with students graduation without debt.  Students with college debt may also delay saving for retirement.Debt

This is a problem that affects all of us. The debt burden of Montana students negatively impacts economic growth in our state, and the issue is gaining state-wide attention.

The Montana Board of Regents, the governing body for Montana’s university system, will be discussing this very issue next week at its meeting in Havre.  We commend the Board of Regents for continuing the discussion on this issue and hope other policymakers will consider ways to make college education more affordable for low-income families and lessen the debt burden of attendance.  

Wonky Word Wednesday: The Federal Poverty Line

Thank you for all of the great feedback last week from our first Wonky Word Wednesday!

We’ve been talking a lot lately about Medicaid Expansion in Montana, and how it would benefit people living below 138% of the federal poverty line. But what do we mean when we say that? Where is that line, and where does it come from? To answer that question, we begin with this week’s wonky word: Federal Poverty Line, or FPL for short.

Before we begin, I have to be honest. For years I have been confused whether to call it the federal poverty level or the federal poverty line. Doing this research, I learned that although we often talk about people living below the “poverty level,” the federal government refers to “poverty guidelines.” For today’s purposes, we are going to call it the Federal Poverty Line.

What exactly is the Federal Poverty Line?

Put simply, the poverty line is a threshold used for calculating official poverty statistics and to determine eligibility for certain federal programs. Below the line, a person is officially considered to be living “in poverty.” The current FPL is updated yearly to reflect changes in the cost of living.  In 2014, a single person is at 100% of the FPL if he or she makes less than $11,670. For a family of three, the FPL is $19,790. Interestingly, Hawaii and Alaska have a higher poverty line because of the expense to live there.

Why do we have it? What is it used for?

The FPL determines eligibility for various federal programs, such as Head Start, the Supplemental Nutrition Assistance Program (SNAP), the National School Lunch Program, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Job Corps, and the Low-Income Home Energy Assistance Program (LIEAP). Different percentages of the FPL can be used for this calculation.

Here’s another example. If Medicaid Expansion were to pass in Montana, people living below 138% of the FPL would qualify for Medicaid health care coverage.  That means earning just over $16,000 a year for an individual, or $27,000 a year for a family of three. There are up to 70,000 Montanans who would qualify under that definition.

 $11,670 doesn’t sound like very much money. How’d they come up with that?

The formula we use for poverty thresholds dates back to the 1960s, when it was developed by Mollie Orshansky of the Social Security Administration. She figured food should cost about one-third of a family’s budget, so she multiplied how much the U.S. Department of Agriculture’s economy food plan costs by three to calculate the minimum a family would need to get by. With a few minor changes, these are pretty much the guidelines we follow today.

The problem here is food used to make up a much larger percentage of a family’s budget than it does today. Other costs, like child care and education, have risen at an even greater rate so even families living above the poverty line might be struggling to get by.

So what do we do with this information?

Right now there are 152,000 people living below the FPL in Montana, over 15% of the population. The Montana Budget and Policy Center is continuing to research ways to help Montana families improve their quality of life and rise above this line. Some of these ways include expanding Medicaid, providing state funding for pre-K, and improving the lives of American Indians in Montana.

I hope you will check back each Wednesday for more wonky words. If you have suggestions, comment below, email me at tjensen@montanabudget.org or post something to our Facebook page.

School Levy Roundup

Although we typically focus on state budget issues here at MBPC, local taxes are an important part of our tax system. Last week, voters in many districts across Montana were asked to approve local school levies. These school levies are typically property taxes levied on residents of the school district that help to fund the needs of local schools. They can be used to support the general fund, a building reserve fund, or other special projects such as improving technology. Public schools benefit all members of our community, helping to give Montana children the strong start they need. 

Here is a round up of the results of the school levies from around the state.

County/City

 

Amount

Passed

Blaine

Turner

High school building reserve fund

$38,951

Y

Turner

Elementary building reserve fund

$38,951

Y

Chinook

Technology fund

$16,000

Y

Chinook

Building reserve fund

$40,000

Y

Cascade

Sun River

High school technology

$30,000

N

Great Falls

Great Falls public schools

$1.6 million

Y

Choteau

Big Sandy

Elementary school

$16,695

Y

Flathead

Kalispell

Elementary school technology

$600,000

N

Columbia Falls

High school levy

$478,984

N

Kalispell

High school technology

$60,000

Y

Fair-Mont-Egan Elementary

Building reserve fund

$100,000

N

Marion

General fund

$33,708

N

Marion

Technology

$67,000

N

Gallatin

Belgrade

High school

$112,000

Y

Belgrade

Elementary school

$712,000

N

Granite

Philipsburg

Technology

$20,000

Y

Lewis and Clark 

Helena

Elementary school district operational

$70,000

Y

Mineral   

Alberton School District

General fund

$250,000

Y

St. Regis

Technology

$59,000

N

Missoula   

Missoula

Elementary district No. 1 general fund

$181,000

Y

Clinton

General fund

 

N

Seeley Lake

Elementary school

$17,999

Y

Pondera   

Conrad

High school general fund

$84,596

Y

Powell County

   

Deer Lodge

High school general fund

$38,000

Y

Deer Lodge

Building reserve

$100,000

Y

Deer Lodge

Elementary school technology

$50,000

Y

Ravalli  

Hamilton

General fund

$485,000

Y

Lone Rock

General fund

$100,000

N

Richland   

Sydney

High school

 

Y

One in Five Working Mothers Work in Low Wage Jobs

This past weekend, we celebrated our moms.  Mothers are often faced with tough decisions on how pink_nwlc_fes_workingmothers1in4best to balance raising kids, while ensuring they grow up in a financially stable environment.  Surrounding Mother’s Day, Montana Budget and Policy Center is taking a look at the challenges facing low-income working mothers.  Last week we released a new report on the cost burdens of child care in Montana.

We were also struck by a recent study put out by the National Women’s Law Center that shows nearly one in five working mothers with young children work in low-wage jobs

All parents face difficult challenges in caring for young children and giving their family a quality life.  But many single mothers, who must be the primary caregiver and primary breadwinner, grapple with meeting even basic needs for their kids – a roof over their heads and a healthy meal on the table. On top of that, they face the additional challenge of finding affordable, quality child care for their children.

To make things more challenging, working mothers of very young children are disproportionately represented in low-wage occupationsIn Montana, almost 22% of working mothers with children younger than 3 years of age are working in low-wage jobs.  By contrast, 15% of Montana’s overall workforce work in low-wage jobs.  Low-wage jobs can bring on their own host of challenges.  They often involve unstable, unpredictable schedules, and lack paid sick or family leave.  As the National Women’s Law Center notes, “the very nature of [these] jobs and the financial insecurity that goes with them can create tremendous stress for parents[.]”

Policymakers and employers in the state should find ways to help all working mothers in Montana succeed. Improving access to quality, affordable child care is one of the first steps in this direction.  State funding for pre-K could help increase child care options for many working families, and help improve the lives of children.

Happy Mother’s Day to all the hard-working moms out there!  Together, we can make sure all moms are given the support they need to provide a successful future for their kids.

What Moms Really Want for Mother’s Day

What do moms really want this Mother’s Day?

For many of Montana’s moms who work outside the home, one thing that tops the list is affordable childcare. With child care costs averaging over $7,500 a year for one four year old, a typical Montana working family with one child must spend a staggering portion of its  income – 13% – on child care, a new report released today by the Montana Budget and Policy Center shows. For low-income and single-parent households, this burden is significantly higher.

Moms are an important part of Montana communities and our economy. In addition to raising our children, they are teachers, helping our students learn; nurses, taking care of our ailing parents; police officers, keeping our communities safe. But for many families, the cost of going to work every day adds up,  forcing many working moms to decide between paying a burdensome amount of their income in child care costs, putting their children in less expensive but low quality child care, or leaving the workforce altogether.

This Mother’s Day, let’s give moms what they need.

Montana is one of only eight states without any state investment in pre-Kindergarten. Public funding for pre-K could help increase child care options for working families, easing some of the burden. And the benefits to children who attend high quality pre-K are numerous – they are more likely to graduate high school and go to college, and less likely to need to repeat grades or receive special education.

This weekend we honor all that moms do – from helping with homework, to treating middle of the night fevers, to working to support their families. And while we are at it, let’s not forget the cost that many working moms bear in order to go to work every day. Montana should support our moms, our children, and our families by supporting state funding for pre-K.

Wonky Word Wednesdays: Centrally Assessed Property Taxes

Have you ever felt like talking about the budget is a bit like taking the vocabulary part of the SATs? There are so many words that we would never use in our day to day lives! I generally know what they mean, but probably could not define them if asked.

With that in mind, we decided to start Wonky Word Wednesdays. Each Wednesday we will pick a word or phrase and do our best to explain what it is in a way that we can all understand. If you have words you want us to explain – in layman’s terms that is – comment below, or post on our Facebook page, and we will add it to our growing list.

The first wonky word (or phrase) will be Centrally Assessed Property Taxes.  At MBPC, we have been closely following Charter Communications proposed ballot initiative. Charter Communications is asking voters to redefine its property so it is no longer centrally assessed, dropping its tax rate from 6% to 3%.  

Centrally Assessed Property began as a way to tax industries – like the railroad – that had property in multiple counties or states and that operated as one big system. The idea was that the company would be taxed uniformly across the state, instead of asking each county to figure out the value of the company’s property located within its boundaries to determine how much in property taxes the company should pay.

The same general rules apply today. A centrally assessed property must operate as a single entity and must be connected across county or state borders, even if that connection is not a physical one – like a telephone wire. The different types of property that Montana law requires to be centrally assessed include: railroads, telephone lines, power lines, natural gas transmission or oil transmission lines, pipelines, airlines, coal mines, etc.

One example of a centrally assessed property is a cell phone company.  It may not have a specific tower in each Montana county, and those towers are not physically connected by a wire. However, a cell phone company is one single company and the ability for the towers to communicate with each other forms the “connection.” This connection is critical for the cell phone company to operate its business across the state. This connection is also what gives the company its value. Therefore, it is centrally assessed in Montana by the Department of Revenue on a statewide basis rather than asking each county to determine how much it should pay in taxes.

Centrally assessed properties are an important part of Montana’s tax code. Hopefully we all understand them a bit better now – I know I do! Check back each Wednesday for more wonky words from your friends at the Montana Budget and Policy Center. And don’t forget to let us know what terms you would like us to explore next!