Why Worry Now About Time-Limited Refundable Tax Credit Expansions?

Say Congress decided to preserve the expansions of the Earned Income Tax Credit and Child Tax Credit that were originally part of the Recovery Act. What would this mean for low and moderate-income working families? Citizens for Tax Justice answers.

In 2018, more than 13 million families, including about 24.8 million children would benefit by an average of $1,073 per family. They’d gain an average of $905 per child. This is only the first year the tax credits will revert to their earlier forms unless Congress acts.

CTJ provides state-by-state estimates, as well as these national estimates — and for each of the refundable tax credits, as well as the two together.

So we learn, for example, that 20,175 families in the District of Columbia, including nearly 45,000 children would benefit from the two tax credits combined. Their average gain would be slightly more than the national average — $1,093 per family. This is somewhat more than two whole weeks of pay for a full-time worker earning what will then be the minimum wage.

The expanded CTC would have the greater impact in terms of both the number of families helped and the average per child benefit, according to the estimates. This is presumably because, without the expansion, families who owe less than zero in income taxes couldn’t receive any refund at all unless their incomes were somewhere around $14,700.

But, as I noted in an earlier post, the District’s own EITC is linked to the federal, as is also the case for all but one of the 25 states with their own EITCs. So the ultimate boost to family budgets is greater than what CTJ estimates.

The flip side of all this, of course, is that a large number of family budgets would take a hit if Congress lets the refundable tax credit improvements die. And that seems thus far what Republicans have in mind.

They do rather like the notion of a child tax credit. But they would expand it up the income scale, while letting the threshold for claiming it revert to its pre-Recovery Act minimum, plus all the inflation adjustments since 2009 — and further adjustments yearly.

The bill the House passed last year, with some Democratic support, would have reduced after-tax income not only for families that couldn’t claim the refundable CTC at all, but for those with incomes as high as $40,000 a year.

President Obama’s budget would make the Recovery Act improvements permanent. The first-year cost in lost revenues would be slightly under $14 billion, CTJ says. A small fraction of the budget, but not chump change.

And, of course, the 10-year estimate we’re used to seeing is considerably higher — roughly $103.8 billion, if I’m reading the Treasury Department’s table correctly. But the President’s budget includes revenue-raisers too.

Well, the President has proposed locking in the EITC and CTC improvements before. Best he could get was an extension that will expire at the end of 2017. Many of us haven’t even filed our 2015 tax returns yet. Why should we worry about 2018 now?

The answer lies in what’s underway in our Republican-controlled Congress. On the House side, Republicans are again moving to convert time-limited tax breaks, mostly for businesses, into permanent law.

The packages they’ve already passed will cost more than $93 billion over the first 10 years. No offsets for the revenue losses, just as there weren’t last year. And there are other temp-to-perm tax breaks in the pipeline.

The more such “tax reform” we have, the slimmer the chances of saving the refundable tax credit improvements. Just look at that deficit, Republicans will say when the improvements are about to expire. Can’t possibly extend them. Next thing you know, we’d be Greece.

We need also to consider the practical politics of trying to pass a bill that does nothing by extend expanded tax breaks for lower-income families. Things being as they are, these benefits don’t stand much of a chance unless they’re packaged with others that appeal to Congress members who’ve got their eyes on wealthier constituents and/or corporate donors.

This, I think, is what top experts at the Center on Budget and Policy Priorities meant when they said, about last November’s huge tax break package, that it risked “stranding” the temporary EITC and CTC provisions that have proved so beneficial to low-income working families.

The fewer tax breaks Congress has left to extend, the fewer the “linkages” supporters can make — or perhaps one should say the fewer opportunities for horse-trading.

In another world, we wouldn’t need them. The EITC and CTC, in their current forms, have lifted more people out of poverty than any other federal benefit, except Social Security — 8.8 million last year, the Census Bureau reports.

The tax credits reward work. We’re supposed to like that. They help support families with children. We’re supposed to like that. And I believe we do, Republicans and Democrats alike, though we’ve differences between and within the parties on certain types of families.

Be that as it may, the EITC and CTC expansions are clearly endangered. We’d otherwise find them in bills that aim to make other time-limited tax measures permanent. And we certainly wouldn’t have had Republicans blaming their exclusion on the President’s immigration actions.

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