Director of Federal Tax Policy
During debate on the Senate tax bill, Senators Marco Rubio and Mike Lee offered an amendment to improve the bill’s Child Tax Credit (CTC) for millions of low-income working families, paid for by cutting the corporate tax rate — currently 35 percent — to 20.9 percent rather than 20 percent. President Trump — as well as many Senate conservatives and organizations such as the Club for Growth and Americans for Prosperity — opposed the proposal because it would slightly reduce the bill’s corporate rate cut. But President Trump now suggests that he’d be open to setting the corporate rate slightly above 20 percent in a final tax bill. That gives congressional Republicans one more chance to make a modest but real improvement in their bill’s treatment of low-income working families, with only a relatively small impact on higher-income households. The top 0.1 percent of households, for example, would get an average tax cut in 2025 worth $135,000 under the Senate bill with the Rubio-Lee amendment, compared to $152,000 without it.
Republicans have highlighted the CTC expansion as their tax plan’s signature benefit for working families. The House bill raises the maximum CTC from $1,000 to $1,600 per child; the Senate bill raises it to $2,000. Both bills, however, for the first time in the program's bipartisan history, cap the increase for lower-income working families while enabling families with much higher incomes to qualify for the credit for the first time. Under the Senate bill, for example, a family of four making $500,000 would receive a new $4,000 CTC for their two children.
But 10 million children under age 17 whose parents work for low pay — about 1 in 7 of all such children in working families — would receive a token benefit of $75 or less under the Senate proposal and nothing under the House proposal. Under the Senate proposal, another 16 million children in working families would receive more than $75 but less than the full $1,000-per-child increase in the credit (in most cases, much less) due to their low incomes. Under both the House and Senate proposals, more than 1 in 3 children under age 17 in working families would receive less than the full proposed CTC increase.
In the Senate debate over the tax bill, Senator Rubio made a powerful case for helping these families:
. . . [T]he people we most want to help are not going to be able to fully use [the Senate bill’s CTC expansion], and here is why. For them, for people who are making $30,000 or $40,000 or $50,000 — you are a construction worker; you are a teacher; you are a firefighter; you are a welder; you are a bus driver — the backbone of America’s workers — their main tax liability is their payroll tax. Unless you allow the tax credit to apply fully not just to their income tax — many of whom don’t have a high income tax liability but a payroll tax — they are not going to enjoy the full benefit. The result is kind of absurd if you do one without the other. The result is, if you make $500,000 a year and you have enough kids, you can use the whole credit, but if you don’t make that much money — if you make, say, $25,000 a year — you won't get nearly as much of the credit even though you have paid the taxes. It kind of doesn’t make any sense, right?
Even under the Rubio-Lee proposal, low-income working families would see far smaller CTC increases than families at higher income levels. But unlike the current bill, the Rubio-Lee proposal offers many of these 26 million children a more meaningful increase in their CTC. Starting with their first dollar of earnings, parents would qualify for a CTC of 15.3 cents per dollar of earnings — enough to offset the payroll taxes that workers face on their wages (including both the employee and employer shares). Consider just a couple of examples:
Supporters of the Rubio-Lee proposal have included Ivanka Trump, who appeared at an October press conference with Senator Rubio and other proponents and said that the tax code should “support our dual values of work and families” and that we should provide “opportunity to all Americans.”
During the Senate debate, the Senate rejected the Rubio-Lee amendment, but now that the bill is in a conference committee with the House, the only route for Senators Rubio and Lee is to use the leverage of their votes to secure this change — as Senator Johnson did to secure a larger tax cut for wealthy investors. Otherwise, Republicans will cement their choice to pass a $1.5 trillion tax bill without providing virtually any meaningful relief to the lowest-income working families.
Adopting the Rubio-Lee amendment wouldn’t fix either the Republican tax bill’s extreme tilt to the top or its fiscal profligacy, nor would it change the fact that key congressional Republicans are already saying they will seek to pay for their tax cuts next year by cutting programs that support low-income working families. But this modest change would allow millions of low- and moderate-income working families to fare somewhat better.