On June 5, the Senate passed 94-2 a bill that
would restore a child tax credit provision for low-income working families
that was dropped in the House-Senate conference on the large tax-cut bill
signed May 28. There has been some confusion about the new Senate
legislation.
Some new reports have stated that the Senate
bill would extend the child tax credit to more low-income families. Some
news accounts also have noted the inclusion in the bill of a provision
extending eligibility for the credit to higher-income families and
described the families made eligible as those in the $110,000-$150,000
range. A number of reports have said the bill’s $10 billion cost would be
offset by increasing customs fees.
All of these statements are at least
partially incorrect.
-
The families the legislation would make newly eligible for the
child tax credit all are higher-income families, and many families with
incomes above $150,000 — particularly in the $150,000-$200,000
range — would be among the new beneficiaries. The bill raises, later in
the decade, the income level at which the credit begins to phase down
for married filers from $110,000 to $150,000, so that families in the
$110,000 to $150,000 range would receive a full rather than a partial
child credit. This also increases the income level up to which
married families receive a partial child tax credit to $189,000 for
families with two children and $209,000 for families with three
children.
-
The bill does benefit low-income working families. It does not
make any low-income families eligible for the credit who are not
already eligible. The bill benefits 6.5 million low-income families with
11.9 million children by accelerating into 2003 a provision of current law
that is scheduled, starting in 2005, to raise the amount of the child
credit they already receive.
-
Some accounts have said these 6.5 million lower-income families
would receive an increase in their child credit of $400 per child and now
get a full credit of $1,000 a child. This, too, is incorrect. The 6.5
million families would receive an increase in their credit, but for most
of these families, the increase would be well below $400 per child and
their total credit would be less than $1,000 per child. (In most cases,
their credit would be limited to 15 percent of the amount by which their
earnings exceed $10,500.) The Senate legislation provides the low-income
families that would benefit from it with an average increase in the child
credit of approximately $150 per child for each of the next two years.
(See table.)
|
Impact of
Senate Bill on Low-income Families |
|
(Married Family
with Two Children) |
|
Income |
Current
Child Credit |
Credit Under
Senate Bill |
Increase Per
Child |
|
$12,000 |
$150 |
$225 |
$37.50 |
|
15,000 |
450 |
675 |
112.50 |
|
20,000 |
950 |
1,425 |
237.50 |
-
Because the low-income provision has an effect only in 2003 and
2004 while the provision providing the child credit to higher-income
families likely will be extended and become a regular, ongoing part of the
child credit, the bill’s benefits for higher-income families are likely
over time to outweigh substantially its benefits for lower-income
families. The low-income provision would boost by $3.5 billion the child
tax credits that low-income families receive in 2003 and 2004. It would
not affect the child tax credits these families receive after that. By
contrast, the provision that extends the child tax credit to the
higher-income families would provide these families with $3 billion to $4
billion in tax cuts in tax year 2010, when it would take full effect.
(The provision would begin to phase in starting in 2008 and would cost
$4.8 billion over tax years 2008-2010.) If extended, this provision would
provide added benefits of $30 billion to $40 billion to the higher-income
families in the ten years after that.
As a result of this provision, analysis by the
Urban
Institute-Brookings
Institution
Tax
Policy
Center finds that in 2010, some
99 percent of the tax benefits under the Senate bill would go to the top
fifth of households, with 78 percent of the benefits going to the top 10
percent of households.
-
Finally, the provision related to customs user fees merely extends
fees that are already in place but are slated to expire on September 30.
The provision does not increase the size of these fees. Extension
of these fees is included in the President’s budget and in the
Congressional budget resolution that the House, along with the Senate,
approved in April.
Child Tax Credit
Phase-out for Married Couples
|
Number of children |
Current law |
New Legislation in 2010 |
|
Credit begins to phase out at
incomes of:* |
Credit phases out completely at: |
Credit begins to phase out at
incomes of:* |
Credit phases out completely at: |
|
1 |
$110,000 |
$129,000 |
$150,000 |
$169,000 |
|
2 |
$110,000 |
$149,000 |
$150,000 |
$189,000 |
|
3 |
$110,000 |
$169,000 |
$150,000 |
$209,000 |
|
* Credit is reduced by $50 for each
$1,000 of income above this threshold level. |
A last point is that while the bill assists
6.5 million low-income working families, it could work to the detriment of
some other low-income working families, although this is not clear.
The extension of the customs users fees in the bill is considered by the
Congressional Budget Office to be a reduction in federal outlays (i.e., in
expenditures), rather than an increase in government revenues.
Extension of these fees was the sole significant source of funding
available to the Senate Finance Committee to cover anticipated costs for
several key components of upcoming welfare reauthorization legislation —
such as costs for child care funding needed to prevent a sizeable
reduction in child care slots for the working poor, for extending and
strengthening a program that provides health insurance coverage for
families that have worked their way off welfare (this proposal is largely
included in the President’s budget), and funds to strengthen child support
enforcement. If the customs fees are used for the child tax credit
legislation instead, this financing source will be unavailable to cover
such child care, health care, and child support enforcement costs over the
next five years. As a consequence, the Finance Committee would face
the alternatives of producing a welfare reauthorization bill that exceeds
its outlay ceiling and thus needs 60 votes to pass on the Senate floor,
making cuts in other programs deep enough to cover these costs, or failing
to include the child care and health care funds, with the result that cuts
in child care slots and health insurance coverage for low-income working
families would ensue.
Legislation introduced June 2 by Senators
Blanche Lincoln and Olympia Snowe would have restored the low-income child
tax credit provision dropped from the recently enacted tax-cut bill and
offset the cost through measures to curb corporate tax shelter abuses the
Senate had approved as part of the larger tax-cut bill it passed in May.
(These measures were dropped in conference.) The provisions to curb tax
shelter abuses fell out of the new child credit legislation in the last
couple of days, however, as the legislation was negotiated in the Senate.
In the end, the extension of the customs fees was used not only to cover
the cost of the low-income child tax credit provision but to cover the
cost of the new tax cut for higher-income families as well.
