Revised May 30, 2003

WAS THERE ENOUGH ROOM IN THE TAX BILL FOR
THE LOW-INCOME CHILD TAX CREDIT PROVISION?

by Isaac Shapiro and Robert Greenstein

PDF of this report

View Related Analyses

If you cannot access the files through the links, right-click on the underlined text, click "Save Link As," download to your directory, and open the document in Adobe Acrobat Reader.

The tax bill that President Bush signed May 28 dropped a child tax credit provision included in the Senate version of the bill that would have assisted close to 12 million children in low-income working families, many of whom receive no benefit from the final legislation.  A front page story in the New York Times on May 29 highlighted the absence of this provision.[1]  In explaining why this provision was dropped, a spokeswoman for the House Ways and Means Committee told the New York Times that the provision was in the bill when the cost of the package was tentatively set at $380 billion but was one of the provisions that had to be dropped to reduce the bill’s cost to $350 billion.  Since the cost of the dropped provision was only $3.5 billion, it appears this decision was not necessary.  It would not have been difficult to provide room for the provision in the bill.

The choice to exclude the low-income provision also reflects a significant inconsistency in the legislation.  The new law accelerates the child tax credit provision of the 2001 tax cut that is targeted on middle- and upper-income families, but not the child tax credit provision of the 2001 law targeted on low- and modest-income working families.  (Similarly, the new tax law accelerates the marriage penalty relief provisions enacted in 2001 for middle- and upper-income families, but not the marriage penalty relief provision of law that is targeted on low-income working families.)

 

Other Claims by Ways and Means Spokeswoman Are Also Off-Base

            In the New York Times article, the Ways and Means Committee spokeswoman also said:

“This bill does a lot to help people who need help.  But its primary purpose was to generate jobs.”

The tax provisions in the bill are of little benefit to low-income households, probably the group that needs help the most.  According to data from the Tax Policy Center, the bottom fifth of households will receive tax cuts from the legislation that average just $1 in 2003, while the next-to-bottom fifth will receive tax cuts averaging $38.  This contrasts with the average tax cut of $93,500 that will go to people with incomes of more than $1 million.

Furthermore, tax cuts targeted on lower-income families are probably the most effective form of tax measure for generating immediate increases in demand, and thus job creation.  Economic research shows that low-income families are more likely to spend additional income they receive through a tax cut than higher-income families are.  Only if tax cuts are spent will they boost the economy now.  For this reason, the deleted Senate provision would likely have been more effective, per dollar of cost, in boosting the economy than most or all of the tax-cut provisions that were enacted.

For further information on the new tax law and the low-income child tax credit provision, see the Center on Budget and Policy Priorities analysis “How the New Tax Law Alters the Child Tax Credit and How Low-Income Families Are Affected


End Notes:

[1] David Firestone, “Tax Law Omits $400 Child Credit for Millions,” The New York Times, May 29, 2003.

[2] Jonathan Weisman, “Late Deals Got Tax Cut Done,” The Washington Post, May 30, 2003.a