As I remarked earlier, Republicans in Congress don’t actually want to prevent tax increases for everybody.
The votes in the Senate last week confirm this. And the upcoming vote in the House almost certainly will as well.
The Republicans — Mitt Romney included — are dead set against increases for the wealthiest 2% of households — those who’d pay more if the two top tax brackets reverted to their pre-Bush levels.
They’re bound and determined to preserve the huge estate tax giveaway — an additional $1.1 million, on average, for heirs to the wealthiest 0.3% of estates.
But they’re opposed to extensions of the current Earned Income Tax Credit and Child Tax Credit — both expanded by the Recovery Act and then extended, in their current forms, as part of the December 2010 tax cut/unemployment insurance deal.
These tax credits, they say, were temporary stimulus measures. “Stimulus” is, as we know, a pejorative when used by Republicans, who are heavily invested in claiming the Recovery Act failed.
The rest of the Bush tax cuts were also nominally temporary and initially sold as a stimulus. But this is nit-picking, I suppose.
What ought to concern us now is what will happen to low-income families if the Republicans get their way.
Citizens for Tax Justice has a new brief that answers this question — though not entirely — both for the nation as a whole and for each state and the District of Columbia.
Refundable Tax Credit Basics
As you probably know, the EITC is a refundable tax credit available to low and moderate-income working families.
In other words, if the credit, plus deductions and other credits they can claim leaves the amount they owe at less than zero, they get a check for the difference from the Internal Revenue Service.
The credit they get — thus the reimbursement, if any — phases out until it disappears. At what income level depends on family structure.
When we talk about the Child Tax Credit in this context, we’re actually talking about a technically separate additional credit that’s partially refundable.
Parents can get up to 15% of their earnings refunded, but only if they’ve earned more than a set minimum. Both the credit itself and the refundable amount are capped at $1,000 per child.
Expiring Recovery Act Improvements
Before the Recovery Act, the EITC provided no additional credit for families with three or more children. And its structure imposed a severe “marriage penalty” because the phase-out was the same for individual filers and couples filing jointly.
The Recovery Act added a tier for larger families and a separate phase-out schedule for the joint filers.
The refundable Child Tax Credit could be claimed only by parents with incomes over $12,050* — and only for earnings above this amount.
So it wasn’t available for the lowest-income families at all. And refunds were well below the $1,000 maximum for those who didn’t earn much more than the threshold.
The Recovery Act dropped the threshold for claiming the credit to $3,000 — thus also the point at which the 15% starts to kick in.
What No Extensions Would Mean
If the two tax credits revert to their pre-2009 forms, 13.6 million families, including 25.7 million children, would lose, on average, $843 in 2013 alone, according to the CTJ brief.
But losses for some would be considerably greater.
For example, a married couple with three children and earnings at the estimated 2013 federal poverty line would lose $1,934 — nearly 7% of their income — due to the combined changes in the EITC and the CTC.
A single mother with two children and a full-time minimum wage job would get $1,552 less if the Child Tax Credit reverts to its pre-2009 threshold. That’s more than five weeks of her pay.
The EITC estimates reflect only losses directly due to changes in the federal tax code.
Twenty-three states and the District have their own EITCs — virtually all a percent of what their residents can claim on their federal returns. All but three of these are fully refundable — just like the federal EITC.
So many families who lose all or some portion of their federal EITC would lose out on their state taxes too. Still more losses in a couple of local jurisdictions because they’ve got EITCs too.
* Before the Recovery Act, the threshold was linked to a cost-of-living index, like many other key parts of the income tax code. CTJ says the threshold would be $13,300 next year if Congress doesn’t extend the refundable Child Tax Credit as-is.