GOP's Pro-Family Tax Reform Might Have a Catch
Since 1981, every major tax cut in the U.S. has included tax relief targeted at parents. The 1997 budget deal coupled a capital-gains tax cut with the creation of a tax credit for children. President George W. Bush expanded that credit as part of his 2001 tax cuts, and accelerated the phase-in of the expansion in his 2003 tax cuts.
The policy rationale for such relief is that parents are overtaxed: They pay too large a share of the burden of modern government, which depends on their financial sacrifices in raising children, but does not adequately account for the contribution they make. (See here for more.) The political rationale is simpler: Pro-family tax relief is popular, in part because it directly benefits a lot more middle-class people than other tax-cut ideas.
As Republicans work on tax reform, this political logic is making them consider another expansion of the child credit. Their other proposals, like reductions in corporate-tax rates, don’t have nearly the same political appeal. And an expanded child credit would make good on some of President Donald Trump’s campaign rhetoric about helping parents.
But Republican politicians aren’t nearly as enthusiastic about a larger child credit as they are about corporate-tax cuts, reductions in the top income-tax rate, and so forth. For many of them, the revenue loss from a larger child credit is money that could be used to make those other tax cuts bigger.
So they’re thinking about making up for the lost revenue from an expanded child credit by cutting other features of the tax code that benefit parents. One option would be to get rid of the dependent exemption and increase the child credit by $500.
That trade-off wouldn’t provide tax relief for parents. If you’re a married couple making between $19,000 and $76,000 a year, you’re in the 15 percent tax bracket. (Which puts you in the most populous tax bracket, home to 36 percent of all married couples.) The dependent exemption of $4,050 saves you $600 in taxes per child. Trading that for an extra $500 in the child credit would leave you behind.
Under this kind of proposal, middle-class parents would be just as overtaxed as they are today, and maybe a little more so. It’s hard to see how this shift would enhance tax reform’s popularity, either, since advocates of the bill would not be able to point to actual savings for these parents.
Pro-family tax reform is a good idea. Its advocates should be on the lookout, though, for a coming bait-and-switch.
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