It came as a surprise when the US House of Representatives passed an expanded Child Tax Credit (CTC) bill by a significant bipartisan majority earlier this year. “The Tax Relief for American Families and Workers Act” was approved by the House 357-70 on January 31 and sent immediately to the US Senate.
Nearly three weeks later the bill is still sitting in the Senate Finance Committee without any action scheduled.
Contrast this with the speed that Congress enacted Donald Trump’s tax cut legislation in 2017. Labelled the “Tax Cuts and Jobs Act,” the MAGA president’s proposals were introduced in the House on November 2, 2017, reported from the House Ways and Means Committee on November 9 and passed by the House on December 19. The Senate approved the bill the next day and Trump signed it into law on December 22, 2017.
There are other differences in how the two tax-related measures have been treated as well.
The “Tax Cuts and Jobs Act” focused on sharply reducing the tax burden of business, especially corporations where the existing tiered tax rate ranging from 15% to 39% was reduced to a flat 21%, while many deductions and credits were retained. Some adjustments were also included that reduced individual income taxes, but these changes are temporary and expire in 2025.
That includes the CTC that was doubled under the 2017 act to $2,000. The actual refundable portion of that credit, however, was capped at $1,600. This is significant in that low-income families rarely hit the full refund amount because it phases in at 15% on the dollar of earned income above $2,500. Limiting the refundable element of the CTC was justified as insurance against low-income families being encouraged by the credit to leave the work force.
Claims were made that the Trump tax cuts would stimulate the American economy at a time when there was growing concern about the effects of globalization on US business health. The Congress ignored skepticism about the probable impact expressed by some private think tanks and showed little respect for the warnings from their own Congressional Budget Office (CBO) that the cuts would result an increase in deficits over ten years of $1.4 trillion. An article in Forbes three years later confirmed the CBO assessment.
By contrast, Congress has in hand the experience of the temporary one-year expansion of the CTC approved in 2021 under the American Rescue Plan. In that case, the credit amount was increased from $2,000 to $3,600 and made fully refundable. Most eligible families received half of the amount refundable in monthly installments and half when filing their tax return.
Research by the Brookings Institution found that the 2021 CTC expansion resulted in an historic reduction in poverty. The impact on child poverty was especially significant, falling to its lowest level on record, 5.2%. Monthly delivery of the benefit was a major factor in reducing poverty, allowing for a greater sense of income security. For families with little or no taxable income, full refundability was a critical innovation in the 2021 expansion.
Even so, in order to get the American Families and Workers Act through the House this year it was necessary to engage in some old fashion logrolling which led to the inclusion of significant tax benefits for business and the wealthy. For example, several corporate tax breaks due to expire in 2025 will be made permanent including a provision that allows companies to expense purchases of equipment in the first taxable year rather than over a multi-year period.
Despite the inclusion of substantial tax benefits for many people who do not appear to really need them, there are senators who are holding out. Both Idaho US Senator Mike Crapo, ranking member of the Senate Finance Committee, and S. Dakota US Senator John Thune, GOP whip, are concerned about the legislation’s “look-back” provision that allows parents to use prior-year earnings when they have lost a job or are dealing with some unanticipated crisis.
The Center on Budget and Policy Priorities estimates that 16 million children in low-income households will benefit from passage of the American Families and Workers Act. But, once again, the concern over the possibility that an irresponsible parent might make off with a few hundred dollars outweighs the obvious advantages to be gain in helping responsible parents raise healthy children.
Maybe Crapo and Thune would better serve the country’s interest if they showed some concern for the fact that many of the largest corporation in America in recent years have paid little or no federal corporate income taxes, while their top management pay themselves millions in annual compensation.
https://www.cbo.gov/publication/53348
Hughes, Siobhan (November 9, 2017). "House Ways and Means Committee Approves GOP Tax Bill". The Wall Street Journal.
https://www.cbo.gov/publication/53348
PERSONAL NOTE:
On Monday, February 19, 2024, I’ll be making a presentation at the Olli program on the Bluffton campus of the University of South Carolina at Beaufort. “Electoral College: Abolish or Reform” will be the topic of this President’s Day program. It will also be streamed to the other USCB campuses at Beaufort and Hilton Head. My presentation will be followed by a moderated group discussion.