House and Senate Not Close to Compromise
After it was widely reported that there were nearly 12 million children in low-income working families who were excluded partly or entirely from receiving the increase in the child tax credit enacted in May, the Senate on June 5 approved a bill to extend help to them, and also to start phasing out eligibility for the credit at $150,000 for married couples (up from $110,000 under current law). Total cost of the Senate’s bill: $10 billion, paid for by extending customs user fees that would otherwise have expired.

The House followed suit on June 12, but the House leadership’s lack of enthusiasm for increasing the credit for low-income families led it to make that provision a small tail wagging a very expensive dog: $82 billion in additional tax cuts, in fact, with only $3.5 billion of it for the same increase for low-income families passed by the Senate. The House took advantage of the outcry to provide some fairness for low-income families to undo the “sunset” of the child tax credit increase that passed in May. That tax cut package was kept to $350 billion because many of its provisions expired after a number of years. The child tax credit increase to $1,000 was set to expire at the end of 2004, when it would drop back to $700. The House’s bill (H.R. 1308) instead keeps the increase in place. Like the Senate, the House bill makes the child tax credit available to higher-income families, but that too is more expensive than the Senate version because it takes effect more quickly. Unlike the Senate, the House bill provides no funding source to pay for the added $82 billion tax cut.

Adding $82 billion to the rapidly growing deficit is a non-starter for the Senate, while the House is unlikely to approve any increase in revenues to offset the cost of its additional tax cuts. This divide makes agreement on the child tax credit between House and Senate conferees difficult to obtain.

The Bush administration, embarrassed that the tax cut left so many children behind (including nearly one million children in military families – active duty and veterans), has spoken out to encourage the House to go along with the Senate version. Some resolute arm-twisting by the White House may push the House to agree to the Senate’s version; anything less is unlikely to move the conferees to a final bill.

Advocates for low-income families believe that the large tax cut proposed by the House will place greater pressure to cut services needed by low-income families, and that those likely cuts will far outweigh the benefits of the child tax credit increase for them. Here’s why:

The increase for low-income families is really just a speed-up of a rise in a portion of the child tax credit that was scheduled to take effect in 2005. For example, a family earning $15,000 in 2003 could receive a maximum child tax credit of $450. In 2005, the credit would rise to $675. The Senate proposal would let the increase take effect in 2003. (The House bill includes the increase, but makes low-income families wait until 2004 to get it.)

While such a family can certainly use the additional $225, if it comes at the cost of reductions in services or benefits the family uses, the family may lose more than it gains.

For analyses of the child tax credit proposals, see the Center on Budget and Policy Priorities.

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