You’ve probably heard this story before: House Republicans choose to cut taxes for the rich instead of the poor. On Friday, they did it once again. The House GOP had an opportunity to address an expiring law that would result in a significant tax increase on the poor. Instead, it passed legislation that would cut taxes for high-income Americans.
In this case, though, House Republicans weren’t simply trying to cut taxes on the rich. They were trying to fix a problem with the Child Tax Credit. Here’s how the CTC currently works: Couples receive a maximum credit of $1,000 per-child, meaning they can lower their tax bill by that amount. For instance, a couple with two kids and an income of $50,000 would owe $8,356 in federal income taxes. With the CTC, they would reduce their tax bill by $2,000, to $6,356. However, not everyone is eligible for the credit. Those with income below $3,000 cannot collect it. And for couples, the credit begins phasing out at $110,000 and is entirely phased out at $150,000. For singles, those numbers are $75,000 and $115,000, respectively.
Thus, the current design of the CTC creates a marriage penalty. For instance, imagine a couple where each person makes $60,000. Separately, they would both be eligible to collect the full credit. But combined, their income ($120,000) would exceed the current phase-out threshold for couples filing jointly. Therefore, the couple could maximize their after-tax income by living together, but not marrying. In other words, the credit is an economic disincentive to marriage.
The House-passed legislation would eliminate this marriage penalty by extending the phase out threshold for couples to $150,000 and indexing it to inflation. These changes would allow a couple to collect the same CTC no matter if they filed separately or jointly. The bill would also index the current maximum credit to inflation and require applicants to provide their Social Security numbers. It would cost $115 billion over the next ten years.
Eliminating this marriage penalty is not a bad idea per se, but if Congress is going to spend $115 billion on the Child Tax Credit, it can put it to much better purposes. In particular, policymakers should extend recent changes to the credit that allowed more low-income Americans to qualify for it. In 2009, Congress reduced the CTC’s earnings minimum so that more low-income Americans could collect the credit. Lawmakers extended those changes in 2010 and 2012, but they are set to expire after 2017—and the legislation that the House passed Friday would do nothing about them. Without new legislation, low-income families will see a severe benefit cut come 2018.
If the House legislation became law, the Center for Budget and Policy Priorities estimated that a couple making $160,000 a year would receive a new tax cut of $2,200. On the other hand, the expiring provisions of the CTC would cause a single mother with two kids making $14,500 to lose her full CTC, worth $1,725. The CBPP projects that 12 million people, including six million children, would either fall into poverty or fall deeper into poverty if Congress does not extend those 2009 changes. Taken together, these changes would be extremely regressive.
To be fair, it's good that House Republicans are looking to correct a flaw in the CTC. But it’s also hard to imagine that it's a real problem. Do couples really forego marriage in order to collect more in CTC benefits? That seems unlikely.
The bill addresses a problem on paper that likely doesn’t exist often in reality—and what it doesn't address on paper is the very real expiring provisions in the CTC. Republican Representative Lynn Jenkins, who introduced the bill, argues that lawmakers can make further changes to the credit in future legislation. But there is no reason not to do so now. If Congress is going to reform the Child Tax Credit, it should address all of the issues at once—unless, of course, Republicans do not actually want to make the 2009 changes to the law permanent.