Revised April 5, 2001
How the House Bill to Expand the Child Tax Credit and Reduce Taxes for Married Couples Would Affect Lower-Income Families
Summary
Twelve million low-and moderate-income families with 24 million children would be left out of the Bush Administration's tax cut, despite the proposed expansion of the child tax credit. These families would not benefit because they do not owe income taxes. Yet most of these families are working families that pay significant amounts of other taxes, most notably payroll taxes. Moreover, many of these families face some of the nation's highest marginal tax rates, and a number of them face some of the nation's largest marriage tax penalties.
Furthermore, if the goal of enlarging the child credit is "to leave no child behind" and "to help families rear and support their children," as President Bush has said, the credit should assist families that have the hardest time in providing adequately for their children and making ends meet. This is particularly important because the tax package may consume most or all of the available surplus outside of the Social Security and Medicare trust funds, leaving few if any resources available to help these families and children in other ways.
The House approved legislation (H.R. 6) on March 29 that represents a step forward from the Bush proposal in that it recognizes that low- and moderate-income working families should have more of their payroll taxes offset and that marriage penalty tax relief should extend to these families rather than just to families at higher income levels. Unfortunately, however, the marriage penalty tax relief the House bill accords to low-income working families eliminates only a modest portion of the marriage tax penalties that many of these families face as a result of the structure of the Earned Income Tax Credit. In addition, while the provision to extend the child credit to some families that pay payroll and other taxes but not income taxes would help a significant number of moderate-income families with incomes above $20,000 or $25,000, the proposal continues to deny the credit to nearly all working families that incur payroll and other taxes but have incomes below these levels.
In fact, an analysis of the House bill by Citizens for Tax Justice finds that the bottom 40 percent of taxpayers would receive only six percent of the tax benefits the bill provides. Furthermore, while certain parts of the House bill represent a step forward, much more ground remains to be covered in providing relief to low-income families, and other parts of the bill would add to the problems the overall tax package would create by making it more likely that the total cost of tax cuts this year will substantially exceed the already high levels in the President's budget. (See a companion Center analysis,
"House Ways and Means Committee Action to Date Adds $300 Billion to Cost of Administration's Tax Cuts.")
http://www.cbpp.org/cms/index.cfm?fa=view&id=1741
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