The GOP Tax Plan Expands the Child Tax Credit -- for the Wealthy

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(Olivier Douliery/Abaca Press/Sipa via AP Images)

One of the most lamentable failures of the repugnant Republican tax plan is the Child Tax Credit proposal. Though the possible expansion of the CTC had been hailed as bipartisan relief for struggling families, this proposal is just one among many that will boost the rich without doing much of anything for the poor. And the conservative reasoning supporting this CTC model is particularly insidious.

Expanding the CTC was a pet project of Ivanka Trump, who has long attempted to pass herself off as a champion of women and a moderate voice in her father's ear, a nonsensical notion in light of her inaction to advocate for the feminist issues she says are important to her. Praising the tax plan, Ivanka said it “takes a big step in terms of helping the American family with the high cost of raising children.”

By “the American family,” she meant the wealthy American family.

The current CTC gives up to a $1,000 tax credit for each child in an eligible working family. Similar to the Earned Income Tax Credit in that it’s meant to encourage work (even if work for the impoverished is consistently low-wage and hard to find), the value of the CTC increases as income goes up, begins phasing out at $110,000, and zeroes out at $150,000 (for a married couple).

Families with annual incomes under $3,000 receive no CTC, and families who earn between $3,000 and $16,000 receive just a partial credit. It's partially refundable too—families can receive 15 percent of their incomes over $3,000 back, up to the maximum credit. This feature is extremely important for low-income families, who may earn too little to owe much or any federal income taxes and wouldn't benefit from just a credit. Without the current CTC, more children would be poor. The CTC was responsible for 1.5 million fewer children in poverty in 2016, and lessened the poverty of another 6.1 million.

But the credit could do so much more.

An expansion of the CTC could have eliminated the partial benefit so that poorer families can receive the full credit, and it could have meant expanding the credit to families in deep poverty, like those who earn less than $3,000.

Child poverty, though at its lowest rate ever, affects nearly 16 percent of all children.

It also could have meant altering the unequal treatment of low-income families regarding their tax refunds—because the CTC is only partially refundable, lower-income families don’t benefit as much as higher-income families. (Currently, since families can only receive a CTC refund equal to 15 percent of their incomes after their first $3,000, a single mother with two children who earns $10,000 a year would only be able to receive $1,050 from the CTC [$525 per child], instead of the maximum $2,000 [$1,000 per child]. Higher-income families would enjoy the full benefit.)

But alas, the Republicans are proposing to expand the CTC in the other direction, so it does an even better job of assisting upper-class families over needier families. For one, the proposal raises the maximum family income needed to be eligible for the credit—in the House's plan, the tax credit would be available for families making up to $294,000. In the Senate’s bill, which was recently revised, the tax credit would begin phasing out at incomes of $500,000. (The original bill phased out the tax credit at incomes of $1 million.)

Though the House raised the maximum credit to $1,600 in their bill, and the Senate raised it to $1,650 (now $2,000), the lopsided refund aspect barely changes—and the maximum refund is capped at $1,100 (indexed for inflation) per child in both the House and Senate plans. So, according to an analysis of the revised Senate plan by the Center on Budget and Policy Priorities, many low-income families would see a return of upwards of $75. Meanwhile, a married couple with two children earning $500,000 would receive a credit of $4,000. CBPP notes that under the House plan, ten million children from families with low incomes would receive no benefit increase at all.

This dichotomy is, well, interesting. Conservative economist Robert Stein has written about the reform conservative case for a child tax credit, which involves mitigating “the disincentive to raise children caused by Social Security and Medicare.” Stein says that because of entitlement programs, families have fewer children because they don’t need to worry about their offspring taking care of them in their old age—the government will take care of them instead. Expanding the CTC, Stein says, will offset this disincentive.

Further, the CTC expansion that Republican Senators Marco Rubio of Florida and Mike Lee of Utah introduced in 2014, based on Stein’s proposal, describes a “parent tax penalty” where parents must pay payroll taxes while also paying to raise “the next generation that will pay payroll taxes.” The current system, according to Rubio and Lee, is one in which parents invest in children who will later help fund entitlement programs, while non-parents don’t. They wanted to negate that “inequity of tax treatment.”

And negating this tax treatment inequity through expanding the CTC will encourage families to have more children—wealthier families, that is. (Instead of supporting social engineering outright, Stein says that poor families already receive an incentive to have children, citing the EITC.) In 2014, Stein told The Week that his proposal is “not designed to encourage fertility in the poor over and above what we already do.”

This argument overflows with disdain for the poor. But it is not a new line of thinking: Consider “family cap” welfare policies, in which a family receiving cash assistance will not receive more funds if they get pregnant and have a child while on welfare. These policies, which currently exist in some form in 17 states, flow from the stigmatizing and harmful view that women in poverty have more children explicitly to get more welfare benefits—a view that has no factual basis. And the current CTC proposal, comparable to Stein’s original idea, is heavy with this same stigma.

The plan also reflects Stein's proposal in that it doesn't help alleviate poverty at all—it's not supposed to. Stein explicitly writes that his child tax credit proposal is “not a welfare check sent to unemployed adults just because they have more kids.” Though the Child Tax Credit is meant to encourage work, and expanding it for low-income families would seemingly do this, apparently the conservative obsession with work-based policies does not outweigh their classist resistance to poor families possibly having more children.

Rubio and Lee's 2014 proposal, though it too was skewed toward higher-income families, at least counted payroll taxes as well as income taxes toward a family’s tax liability, which would have given some assistance, though meager, to low-income families. Even they said that the original CTC proposal in the tax plan didn’t go far enough to help working families—leading the GOP Senate to raise the maximum credit per child to $2,000 in order to win over Rubio and Lee.

It's too bad that helping low-income families is not a priority for most Republicans, considering that restructuring the child tax credit into a universal child allowance—where all families up to a certain income limit would receive a cash allowance for each of their children—would drastically reduce child poverty.

Many wealthy countries already provide child allowances to all families.

A 2016 report by the Century Foundation found that providing a $2,500 allowance to all children under age 17 would lift 5.5 million children from poverty and cut the child poverty rate (then 16.5 percent) by 5 percentage points. A smaller allowance, $2,500 per child under age 6, would cut child poverty 2 percentage points, resulting in 3.2 million fewer children in poverty. The universal allowance for all children, according to the report, would more than triple the current anti-poverty effect of the CTC.

In October, Democratic Senators Sherrod Brown of Ohio and Michael Bennet of Colorado released a child allowance proposal that would provide $300 monthly to children under age 6 and $250 monthly to children ages 6 to 18. The benefits of their plan, which would phase out for higher-income families, would bring an estimated 5.3 million children out of poverty, reducing child poverty by nearly half, to a rate of 8.6 percent.

Besides the income benefits, cash allowances could alleviate the more sordid consequences of poverty: The resultant stress has a negative effect on a developing child. The stressors that parents in poverty face affect their kids too, and an income boost could help.

Who knows? Maybe a universal child allowance would even encourage more rich people to have kids.

The real importance of such a policy, or even just a child tax credit expanded to those in deep poverty, lies in how it would sharply reduce the number of families living without the sufficient means to provide for themselves and their children. If only that were a focus of the GOP's tax plan.

This piece has been updated to reflect Senate revisions to their Child Tax Credit proposal.