Low-Income Children At Risk As Congress Takes Up Tax Cut Extensions

Back in 2001 and again in 2003, the Bush administration pushed through a package of tax cuts purportedly to jump start the economy. Some of these benefited only high-income households–the phase-out of the estate tax, for example, and reductions in the capital gains and dividend tax rates. Others provided some tax relief for middle-income households as well.

In the long run, the cuts would have had an enormous impact on the deficit. So Congress finessed the issue by enacting them for only 10 years. The assumption, of course, was that no Congressional majority would let them all die. And the current Congress certainly won’t.

The issue rather is which tax cuts will be extended–and, in some cases, whether the extensions will be based on the 2001/3 legislation or on changes Congress made as part of the American Recovery and Reinvestment Act (the economic stimulus package).

Several of these changes made a big difference to low-income families. One of them was a lower threshold for claiming the Child Tax Credit. Even before ARRA, this credit was the largest federal cash assistance program for children.

Unlike the better-known Earned Income Tax Credit, the Child Tax Credit is only partially refundable. And workers have to earn a minimum to qualify for the refund. The credit phases in from this minimum.

Under the 2001 Bush tax cuts, the minimum was set at $10,000, annually adjusted for inflation. Above this amount, parents received 15 cents for every dollar earned, up to a maximum of $1,000 per child. ARRA dropped the threshold to $3,000, making the tax credit available to very low-income families.

If Congress reverts to the 2001 version, the threshold will rise to about $12,850. The Center on Budget and Policy Priorities reports that low-income working families with a total of 7.6 million children would lose their entire tax credit.

But because the refund is pegged to dollars above the minimum, families with considerable higher incomes would be affected as well. Those who stand to lose most would be those with incomes between the new $12,850 threshold and $16,333. Included here would be numerous families with a full-time, minimum wage worker.

CBPP estimates that 600,000 children would fall into poverty. An additional 4 million already-poor children would fall into deep poverty, i.e., below 50% of the federal poverty line. The current FPL for a family of four is just $22,050.

Preserving the expanded Child Tax Credit would be consistent with the long-standing, bipartisan interest in promoting work. It would also help address what are likely to be ongoing pressures on the safety net. And, like other benefits, it would put money into our economy, since low-income workers perforce spend most of what they get.

A better course, however, would be to drop the threshold to the first dollar earned, as is the case with the EITC. This further expansion was part of the jobs bill the House passed in December. So it stands at least a fighting chance there. The Senate, as always, is a question mark.

You who have voting representation in Congress can support the extension and further expansion of the current Child Tax Credit by using an editable letter I’ve created on Change.org.

We who live in D.C. will still, alas, have to pass the message along to our enfranchised connections. Please do.

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