With tax reform potentially on Congress’ agenda next year, the tax plan that Senators Mike Lee (R-UT) and Marco Rubio (R-FL) sketched out recently will merit a close look. Its marquee proposal would supplement the current Child Tax Credit (CTC) with an additional credit of $2,500 per child. We can’t evaluate the plan, which the senators say “won’t only help revive the American dream, but also make it more attainable for more Americans than ever before,” until they provide the details. Here are four things we’d like to know about its changes to the CTC and the other major tax credit for working families, the Earned Income Tax Credit (EITC).
- Would “stock clerks” with children receive the new child tax credit? Lee and Rubio write that Americans “see an economy that benefits stockholders but not stock clerks.” But another tax plan that Senator Lee released in the spring, which also featured an additional child tax credit, denied the new credit to many working-poor families even though high-income families with children would have benefitted.
- Would low-income families keep their current Child Tax Credit? Under the prior Lee plan, a single mother who works for the minimum wage and has two kids would have lost $1,725 in existing CTC benefits because the plan let key improvements to the existing CTC (as well as the EITC) expire in 2018. But a millionaire with two children would qualify for a new child credit worth more than $5,000.
- Would the plan’s “retooling” of the EITC reduce poverty? Lee and Rubio promise to “retool” the EITC in combination with means-tested programs (like SNAP, formerly food stamps), saying that the phasedown of these benefits in response to higher earnings creates high “marginal tax rates.” As we’ve explained, though, changes to reduce these marginal tax rates can also shrink needed assistance to poorer families — or increase program costs. The EITC and CTC together lift more children out of poverty than any other program; “reform” can mean a lot of things, so when the details are available, we’ll be looking at whether the plan cuts assistance to the neediest families, thereby worsening poverty, or is structured to reduce poverty.
- Will the plan expand the EITC for childless workers, as leading members of both parties favor? Working adults who aren’t living with and raising children are the only group that the federal tax system taxes into (or deeper into) poverty. President Obama and House Budget Committee Chair Paul Ryan (R-WI) have both proposed expanding the EITC for this largely left-out group.
Several months before releasing his tax plan this spring, Senator Lee called for tackling the “opportunity crisis” of “immobility among the poor,” “insecurity in the middle class,” and “cronyist privilege at the top” and promised that his tax plan would address these problems. But when the details finally appeared, they didn’t live up to his speech. Let’s hope this time’s different.