Working poor tax cuts should be part of debate

Peter Ruark

Congress will be debating soon whether to extend the controversial tax cut packages passed in 2001 and 2003.

These tax cuts are widely blamed for the deficit that President Obama inherited when he took office last year and are seen as one of the principal causes of the current deficit. Equally controversial to the hole in the federal budget they created was the fact that most of the tax cuts were aimed at affluent Americans.

One provision in this package, however, has benefited many families who are lower on the income scale: the provision making the child tax credit partially refundable to families making over $10,000 (meaning that these families can receive a partial credit even if the credit amount exceeds the amount they owe in tax).

The child tax credit, which gives families a $1,000 credit per child up to two children and a partial credit for additional children, has seen two other improvements since then. The first improvement was in 2008, when the income eligibility threshold was lowered to $8,500 for that tax year. Then, in 2009, the Recovery Act lowered the threshold to $3,000, making the credit available to many very poor families who would have otherwise been ineligible.

As a result of the 2009 change, a family with two children is now able to receive the full credit when its earnings reach $16,333 (as opposed to $21,993 in 2008 and $23,333 in 2001).

A report by the Center on Budget and Policy Priorities estimates that families of 584,000 children in Michigan would lose all or part of their child tax credit if Congress renews the Bush tax cuts without extending the 2001 and 2009 child tax credit improvements. Nationally, families with incomes above $10,000 would bear 80 percent of the tax credit losses.

It would be unfair to extend tax credits for the wealthy without also extending one that benefits the poor. Not only that, it would be irrational in light of the current economic situation. Like the earned income tax credit, the child tax credit given to low-income working families tends to get spent in local businesses and thus act as a stimulus to local economies. The child tax credit expansion was included in the Recovery Act because it is one of the fastest ways to get additional money flowing through communities, helping to save and create jobs.  

Fortunately, the 2001 and 2009 improvements to the child tax credit are in the budget set out by President Obama and in legislation introduced by Senate Finance Committee chairman Max Baucus. However, as we have painfully seen many times in recent years, the sausage-making that goes on as a bill winds its way through committees, debates, floor votes, and conferencing can often result in certain elements of the bill getting dropped.

We need to make sure Congress does not short-change low-income workers as it passes its budgets for the upcoming fiscal year, and the Michigan League for Human Services will keep you informed if any mischief occurs with this credit.

— Peter Ruark

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2 Responses to Working poor tax cuts should be part of debate

  1. Peter Ruark says:

    Someone asked me a question about the statement that families earning over $10,000 would bear 80 percent of the losses if the 2009 changes are not made permanent. I should clarify: all households who would lose out would be low income. Failing to make the 2009 change permanent would not affect those earning more than $26,180 (two children) or $32,850 (three children). Middle- and upper-income families are not affected by the 2009 change.

  2. […] Factually Speaking post on Feb. 22, I wrote about the federal Child Tax Credit and how the American Recovery and Reinvestment Act […]

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