CHN: Improvements in Low-Income Tax Credits in House Bill

On May 21 the House passed legislation including improvements for low-income families in the Child Tax Credit and the Earned Income Tax Credit.  These important changes were part of the Renewable Energy and Job Creation Act (H.R. 6049), which extends dozens of temporary tax cuts that expired December of 2007 or will expire December 2008.  The $57 billion bill includes the research and development tax credit, a deduction for property taxes for non-itemizers, the deduction for tuition expenses, an optional deduction for state sales taxes and a package of energy-related tax credits designed to provide incentives for the creation of alternative sources of energy.  The bill, which passed by a vote of 263-160, allows poorer families to qualify for the Child Tax Credit, and lets more low-income military families qualify for the Earned Income Tax Credit.
For many families the Child Tax Credit is worth $1000 for each child under age 17.  However, low-income working families with earnings below $12,050 receive no credit because the earnings minimum for receiving credit was originally set at $10,000, with the threshold rising each year at the inflation rate.  Those making somewhat more than the current $12,050 minimum can receive a partial credit set at 15 percent of earnings above the threshold.  H.R. 6049 would lower the earnings threshold to $8,500 and no longer increase it for inflation each year.  According to the Tax Policy Center, this would benefit 13 million children including 10.1 million who would receive an increased benefit and 2.9 million who would become newly eligible for the Child Tax Credit.  For a further analysis of families who would benefit and the states where they live, see the new Center on Budget and Policy Priorities.

The bill would also allow military families the option of counting combat pay toward their gross income.  Choosing to do so would increase the value of the Earned Income Tax Credit they receive.

Under budgetary pay-as-you-go rules, the bill is fully paid for by two revenue-raising offsets.  One would prevent certain executives and some hedge fund managers from delaying taxes on compensation by using offshore arrangements.  The second would delay implementation of rules that give multinational corporations more flexibility in how they allocate interest expenses.  Many Republicans object to the offsets and would rather pass a bill that simply increases the deficit.

The bill now goes to the Senate where no time frame to address the bill has been set.  There will likely be strong resistance from Republican Senators to the House’s use of revenues collected from offshore compensation to pay for the bill’s tax cuts. Sixty votes would be needed to overcome their opposition.  Advocates will continue to work in support of including the improvements in the Child Tax Credit and Earned Income Tax Credit in the bill.

tax policy