One of the big changes in the latest Senate tax bill is, on its surface, a big benefit for families. The bill would double the child tax credit, now set at $1,000 per child, to $2,000.
That’s far more than either the initial House or Senate bill proposed increasing the credit, and because the size of the benefit doesn’t vary by tax bracket, it’s a more progressive policy than the personal exemptions the enlarged credit replaces.
But if you look at the details, there’s something unseemly about how the credit expansion works. Basically, the bill does little to expand access to the credit for the poor and a lot to expand access for affluent families, including those of members of Congress.
Put it this way. A single mother with two children working full time at the minimum wage would only get $75 more under the proposal, as calculations from the Center on Budget and Policy Priorities show. But Sen. Marco Rubio (R-FL), who along with his wife earned $335,963 in 2014 according to their tax return, would get a more than $2,200 cut.
Again: Marco Rubio would gain nearly 30 times more than a single mother in working poverty. He even gets a bigger benefit in percentage terms.
How the credit leaves out poor families while helping senators
This situation arises from two problems with the proposal. One, it does little or nothing to increase “refundability,” which enables the child credit to help poor families who don’t earn enough to pay income taxes. Two, the proposal would dramatically expand access to the credit for families making six figures, including many members of Congress.
Currently, you have to make at least $3,000 a year to get the child credit, and even then it phases in slowly, at a rate of 15 cents on the dollar. That’s true even if you have multiple children. So that hypothetical single mom with two kids making minimum wage (or about $14,500 a year) only gets $1,725 a year ($14,500 – $3,000 = $11,500; $11,500 x 0.15 = $1,725). If she made $50,000 a year, she’d get the full $2,000. Her benefit is reduced because she’s poor.
For deeply poor parents, and parents with lots of children, the situation is even worse. Imagine the single mom has four kids, and to keep up with all of them, she works minimum wage but only part time, earning $7,250 a year. She’d only receive $712.50 ($7,250 – $3,000 = $4,250; $4,250 x 0.15 = $637.50) from the credit. If she made $50,000 a year, she’d get $4,000. Indeed, while in poverty she gets the same benefit she’d get if she only had one kid, even though her child-rearing expenses are four times as great.
The Senate bill does three relatively small things to expand the credit for poor families. It cuts the phase-in threshold to $2,500, makes children up to 18 eligible for the credit (the current maximum age is 16), and increases the refundable part of the credit to $1,100 from $1,000, and then gradually increases it further to $2,000 over many years. But that’s it, in terms of benefits for poor families. That hypothetical single mom of four working part time would see her benefits go up by only $75.
By contrast, you know who would see his child credits grow by $8,000? Republican Sen. Marco Rubio. Whereas the child credit today phases out for married couples earning $110,000 or more, the tax bill would start phase out at $500,000 for married couples. According to Rubio’s 2014 tax returns, released as part of his presidential campaign, he and his wife earned $335,963 that year. That’s way too much to be eligible for the credit today, but he’d get the full credit under this tax bill. Since he has four kids, that’s $8,000.
The benefit is reduced considerably because Rubio would lose the personal exemption, which in 2014 would have knocked $5,787.54 off his taxes. (He’s rich enough that the benefit phases out for him somewhat). His net gain from trading the exemption for enlarged credits would have been about $2,212.46. But that’s still far, far more than the plan offers poor families.
To be fair, Rubio has argued for a more inclusive credit: He’s pushed to cut the refundability threshold all the way from $3,000 to $0, which really would help poor families a lot, though not enough. But other Republican senators with young families who’ve been less vocal about increasing refundability would benefit too.
According to tax returns shared with reporters in his 2014 run for Senate, Colorado Sen. Cory Gardner and his wife, Jaime, had an adjusted gross income of $158,029 in 2013. It’s likely similar now; at the time, Gardner was a member of the House, and both House and Senate members make $174,000 a year before taxes or AGI adjustments. That’s too much to claim a child credit today, but if the tax bill passes, he’d be able to get a $6,000 in tax credits for his three children.
Again, that’s partly offset by the loss of the personal exemption (which, at a 28 percent tax bracket, would’ve cut $4,326 from his taxes that year), but only partly. He still comes out ahead. (Ted Cruz has two small children, but because his wife is a rich Goldman Sachs executive, his family makes about $1.2 million a year, far too much for even the expanded child credit.)
There’s a simple way to make the credit fair, or at least fairer
There are incredibly easy ways to fix this problem and ensure that poor families get a larger benefit from the child credit than rich members of Congress.
Sens. Michael Bennet (D-CO) and Sherrod Brown (D-OH) have introduced a fantastic bill that would increase the child credit to $3,000 per year, and $3,600 per year for children under 6. They would not expand access for the rich, but they’d make it fully refundable, without any complicated phase-in, and pay out monthly so families don’t have to wait for their tax refund to benefit.
Rubio and Gardner would gain $0 under the Bennet-Brown plan. That mother of four working part time at minimum wage? She’d see her benefit increase from $637.50 to at least $12,000, or as much as $14,400 if her kids are all young. She and her children would be lifted out of poverty.
Bennet, Brown, and Sen. Bob Casey (D-PA) are introducing a more limited form of the legislation as an amendment to the tax bill. The amendment would lower the phase-in threshold for the credit to $0, raise the phase-in rate to 45 percent from 15, increase the amounts to $2,500 for children 6 to 18 and $3,000 for kids under 6, and start phaseout at $313,800 for married taxpayers filing jointly. Rubio and Gardner wouldn’t even have to lose out! The amendment would also make the child and dependent care credit, another benefit for families with kids, refundable, and increase the earned income tax credit for people without children. It would, all told, do a tremendous amount to help poor and middle-class families.
The idea of transferring that much money to the poor is not exactly enticing to conservatives who worry (I think incorrectly) that the money would lead poor parents to reduce their work hours. But there are more moderate steps they could take. Rubio and Sen. Mike Lee (R-UT) have proposed making the credit “refundable against payroll taxes.” That’s not actually a thing, because payroll tax refunds aren’t really a thing, but it would effectively reduce the refundability threshold to $0 and increase the phase-in rate very slightly, from 15 percent to 15.3 percent (the cumulative rate of employer and employee Social Security and Medicare taxes).
Under the Rubio-Lee plan, that mom of four working part time would get $1,087.50 a year back from the credit, up from $637.50. She’d gain $450. That’s not nearly as good as the Bennet-Brown plan but it’s a hell of a lot better than the plan as currently written.
The tax bill is a massive, $1.5 trillion piece of legislation, and one in which all the benefits for individuals are set to expire after eight years anyway. It would be totally possible for Senate Republicans to add at least the Rubio-Lee proposal, and preferably the Bennet-Brown plan, to the mix, to ensure that poor and middle-class families share in the expansion of the child tax credit. That they haven’t is a damning sign of where their priorities lie.