CHN: Advocates Push for Boosting Low-Income Tax Credits in Year-End Package

Congress routinely passes legislation to continue expired or soon-to-expire tax provisions (largely benefiting businesses, and known as “tax extenders”), often attached to must-pass spending legislation. Details are still fuzzy about what a spending package may look like in the coming weeks and months to keep the government funded (see related article in this Human Needs Report). But what is known is that members of Congress are expected to try to add a package of tax cut extenders onto end-of-year spending legislation. Advocates are making the case that any tax package that moves through Congress must include provisions to help low-income families.

The 2017 Tax Cuts and Jobs Act (TCJA) overwhelmingly benefited corporations and wealthy individuals. It largely left out, however, improvements to the Earned Income Tax Credit (EITC) and expanded the Child Tax Credit (CTC), but mostly for the benefit of families with higher incomes.  According to the U.S. Census Bureau, the EITC and CTC lifted more than 8.9 million people out of poverty in 2018 and helped millions more just below and above the poverty line.  Despite bipartisan support for improving these effective tax credits for low-income working families, the TCJA failed to target assistance to those with the lowest incomes

Since the enactment of the TCJA, several industries have been urging Congress to pass “technical corrections” for some of the business provisions in the TCJA. These “corrections” will add more tax breaks, worth billions, for certain businesses. Advocates are reaching out to members of Congress to ensure that any tax package that passes this year include improvements to the EITC and CTC as well.

The TCJA did include an increase in the CTC from $1,000 to $2,000 per child, and raised to $400,000 the income cut-off for eligibility for a partial credit.  But under the law the CTC doesn’t start to phase in for low-income families until a tax filer has more than $2,500 in earnings, and it then phases in slowly. As a result, low-income working families with 11.4 million children are receiving only a token CTC increase of $75 or less. Families of 15 million more children are receiving CTC increases that are substantially less than $1,000. And if a family’s Child Tax Credit would exceed the federal income tax it owes (a “refundable credit”), the family cannot, under the TCJA, receive more than $1,400 per child as a tax refund.

It has been recognized for a long time that the EITC for low-wage workers who aren’t raising children in their homes is often too small even to offset the income and payroll taxes these workers must pay. This is the main reason the federal tax code taxes more than 5 million such workers into, or deeper into, poverty.

Several bills to expand the EITC and CTC have been introduced in Congress this year. The House Ways and Means Committee passed the Economic Mobility Act of 2019 (H.R. 3300), introduced by Committee Chair Richard Neal (D-MA), on June 20. Among other improvements, the bill would, for the next two years, nearly triple the maximum EITC for workers who aren’t raising children in their home; make the credit available for people who aren’t full-time students starting at age 19 and up to age 66; and provide federal matching funds for Puerto Rico’s new EITC and would provide similar matching funds for other U.S. territories. Additionally, the bill would, for the next two years, make the CTC fully refundable so children in households with little or no earnings will benefit from it. It would also introduce a new Young Child Tax Credit (YCTC) worth an additional $1,000 for a child under age 4. The bill would also expand for two years the Child and Dependent Care Tax Credit, which subsidizes child care expenses, and make it refundable. The Center on Budget and Policy Priorities estimates that the legislation would raise the after-tax income of 16 million childless adults. The bill’s CTC changes would benefit more than 42 million children.

As reported in the June 17 Human Needs Report, the Working Families Tax Relief Act (H.R. 3157/S. 1138) would also expand and improve the EITC and CTC in multiple ways. The Center on Budget and Policy Priorities estimates that the legislation would raise the incomes of 46 million low- and moderate-income households with 114 million people. It would lift 29 million people, including 11 million children, above or closer to the poverty line.

Child Tax Credit
Earned Income Tax Credit