CHN: House Passes Child Tax Credit Legislation

The House continued its weekly tax cut drive when it agreed to a 10-year $228 billion child tax credit bill (HR 4359) on Thursday, May 19. (Since the cost of the credit will come out of borrowed money, adding the interest payments brings the total to $279 billion.) The bill makes permanent the $1,000 tax credit per child first enacted in 2001, but also makes families with much higher incomes newly eligible. Adding these families comes with a $69 billion price tag ($87 billion counting the added interest payments), or more than 30 percent of the total. The bill passed by a 271-139 vote. (To see how your member voted click here)
HR 4359 raises the point at which the tax credit begins to phase out from the current $110,000 to $250,000 for married couples and from $75,000 to $125,000 for single taxpayers. That means couples with incomes up to about $300,000 will receive at least some of the credit. Those with incomes between $150,000 and $250,000 will receive the full $1,000 a year per child. A family in this income range with two children would reduce their taxes by $2,000 a year, or $22,000 over the 10 years covered by the bill.

Meanwhile, the bill does very little for families with low incomes. It accelerates by one year an increase in the portion of the child tax credit available to working families with earnings so low that they owe little or no income tax. (Under current law, this increase is scheduled to take effect in 2005.) A family earning $12,000 would gain $62.50 in 2004 because of the one-year increase for low-income families.

The House chose to spend $87 billion to extend the child tax credit to families with higher incomes, but did not extend the credit to working families with lower incomes than will qualify under current law. Only families earning more than $10,750 in 2004 will be eligible. Families working full time at the minimum wage earn $10,712 – the child tax credit is not available to them. According to David Harris of the Children’s Research and Education Institute, about 8 million children live in families with earnings below $10,500 – none of them will receive any benefit from the child tax credit.

Why does it matter that the bill is not paid for? Because the tax cutting fervor that has gripped Congress since 2001 has drained the federal treasury and put at risk federal programs that serve working poor families, children, the elderly, those without health insurance and other vulnerable Americans. The total cost of the tax cuts the House has passed in the past four weeks is about $600 billion, including interest – all of it from borrowed money. This is a bad deal for low-income families because their small tax cuts will be overwhelmed by losses in services or benefits. Both the President’s budget and the plan just adopted in the House provide a first taste of the cuts to come, with cuts proposed in budget areas including housing, child care, WIC, and Medicaid. Low-income families who lose subsidized housing, are placed on WIC or child care waiting lists, or receive less Medicaid coverage will not be able to make up those losses with the little they get in tax cuts.

For More Information:
CBPP: Who Would Pay for the House’s “Free Lunch” Tax Cuts?
CBPP: House Bill Adds Deficit Financed Tax Cuts

tax policy