Director of Federal Tax Policy
In revising the Senate Republican tax plan’s expansion of the Child Tax Credit (CTC), Senate Finance Committee Chairman Orrin Hatch raised its cost by about $13 billion (or 22 percent) per year but did nothing for the millions of low- and moderate-income working families that would get only token help under the prior proposal.
Under the revised proposal, a single mother with two children working full time at the minimum wage would still get just a $75 increase in her credit, just like under the prior proposal, while a family with two children and $500,000 in earnings would get a $4,000 credit — up from $3,300 under the prior proposal (see graph) and from $0 under current law. Some 10 million children in working families would get a $75 increase or less. And even this meager increase would be temporary, because the entire CTC increase — as well as the bill’s other individual income tax cuts — ends after 2025.
Today, the CTC provides a maximum tax credit of $1,000 per eligible child under age 17. It’s “partially refundable,” meaning that it’s partly, but not entirely, available to many working families with low incomes. Specifically, the CTC’s refundable portion is limited to 15 percent of a family’s earnings over $3,000. The credit phases in slowly for low-income working families as their earnings rise, so a two-child family doesn’t receive the full credit until its earnings reach $16,333.
The revised Senate plan raises the maximum CTC to $2,000 per child, compared to $1,650 under the prior plan. (Like the prior plan, it also extends the credit to 17-year-olds, who are currently ineligible.) The new plan, however, still severely limits the increase to millions of children in working families because a family must have earnings high enough to owe substantial federal income taxes to benefit from the full $1,000-per-child increase.
1 in 7 children in working families — about 10 million children under age 17 — whose parents work at low-paying jobs would get just $75 per family (even if they have more than one child), or less. The plan would only slightly reduce the earnings threshold to qualify for the CTC’s refundable part, from $3,000 in earnings to $2,500. Thus, a family that only qualifies for a partial credit today would see its CTC increase by at most $75 (15 percent of the $500 reduction in the refundability threshold).
Consider a single mother with two children working full time as a home health aide at the federal minimum wage of $7.25 an hour and earning $14,500 a year. Her current CTC is $1,725, or $275 less than what two-child families with incomes high enough to qualify for the full $1,000-per-child credit receive. Under the revised Senate proposal, her CTC would rise by $75. Ten million children in working families would receive that same token increase (or less).
About 16 million additional children under age 17 in low-income working families would get more than $75 but less than the full $1,000-per-child increase — in most cases, much less. That’s largely because the Senate bill, like the bill that recently passed the House Ways and Means Committee, limits their credit by capping the CTC amount that can be refundable at the current $1,000, indexed to inflation ($1,100 in 2018, for example). Thus, the advertised maximum $2,000-per-child CTC doesn’t apply to these working families.
Consider a family where the father works as a cook making $24,000 a year and the mother stays at home to care for their two young children. Based on their earnings, this couple would appear to qualify for a refundable CTC of $3,225 (15 percent of their earnings over the new $2,500 earnings threshold). But that ignores the proposal’s fine print. Because of the Senate’s cap on refundability, this family would receive $2,200, or only $200 more than under current law.
Altogether, 1 in 3 children in working families would receive a token or partial increase.
While severely limiting the CTC increase for many children who need it most, the bill provides the credit to many high-income families for the first time. It raises the income level at which the credit begins phasing out from $110,000 per couple all the way to $500,000. (The prior proposal raised the threshold even higher, to $1 million per couple.)
The children whom the Senate bill would help the least are those for whom a larger CTC could do the most to reduce hardship, help families make ends meet, and create a more stable environment for children. They’re also the children for whom, extensive research indicates, a CTC boost would likeliest improve their odds of being healthy, doing well in school, going to college, and earning more in adulthood.
The Senate’s CTC proposal is a disappointment given the vocal support from Republican Senators Marco Rubio, Mike Lee, and others for increasing the CTC for low-income working families.