Matt Bruenig, a writer for Salon, thinks that Senator Mike Lee’s tax plan, which is given prominent billing in Robert Stein’s tax chapter of the YG Network’s new policy book, Room to Grow, is a “horror show” because it’s just another giveaway to the rich. I don’t doubt that he would find a way to call it a horror show whatever the facts of the plan are, but he either misunderstands the way its proposals for the expansion of tax benefits for parents work or he simply doesn’t care and wants to mislead his audience about them. His characterization of a key aspect of the plan is just wrong.
Besides what it does to the formal tax rate structure, Bruenig writes, Lee’s plan does the following: “It massively expands the American welfare state by dramatically increasing the cash transfers parents of children receive. Well, it increases the cash transfers some parents will receive, namely middle- and upper-class parents, while totally neglecting the rest.” This isn’t true — it will increase benefits for all parents.
How? Bruenig explains that there are two big ways the tax system currently compensates parents for the cost of raising children: a $1,000 per-child tax credit and a $3,900 tax exemption per child. He’s right to note that both are, in theory, worth more to high-income households than low-income ones: Tax exemptions, because rich people pay higher tax rates than poor people, are basically always worth more to people who earn more, and generally tax credits, while they reduce one’s tax bill dollar-for-dollar regardless of one’s tax rate, may not be worth their full value to low-income people because they have no income-tax liability at all or have less than their tax credits are worth. (This doesn’t really even apply to the existing child credit, though, as I explain below.)
What he gets entirely wrong is that Lee’s tax plan helps fix this. Lee’s plan will create a new tax credit worth $2,500 per child, and allow taxpayers to use it to reduce payroll-tax liability in addition to income-tax liability. Almost anyone who has a job pays payroll taxes, and their formal liability is about 6 or 7 percent of income — Lee wants to allow people to use the child-tax-credit expansion to erase that.
The existing $1,000 per child tax credit leaves one’s payroll-tax liability intact. Bruenig seems to imply that existing credit isn’t useful for people who have no income-tax liability, like any old tax credit, but it is (though his characterization of it at one point as “semi-refundable” hints that he knows it is useful to low-income workers). They basically can get a check from the government equal to 15 percent of earnings over $3,000, up to the $1,000 per child value. But this doesn’t erase the substantial payroll taxes they owe — Lee’s plan would. (That tax credit also phases out starting around $70–100,000 in income, making it less valuable to upper-income earners, which Bruenig doesn’t explain. Lee’s new additional credit, though, would not phase out.)
In any case, Bruenig writes:
The net affect [sic] of all of this is that, under the proposal, a family making $70,000 per year who had twins would receive more than $7,000 per year in child welfare payments via the tax code. A family making $10,000 or $15,000 per year who had twins might receive a few hundred dollars in child welfare payments, if any at all.
This isn’t correct: The family making that amount of income would receive the benefits they get from the existing child credit (which is a couple hundred dollars, on average, according to the Tax Policy Center) and see their entire payroll-tax liability erased. For a family making $15,000, that’s probably about $1,000 in new benefits. In addition, of course, Lee’s proposal preserves the earned-income tax credit, which also provides benefits to low-income households with children, further increasing the child welfare payments they get beyond the “few hundred dollars, if any at all” Bruenig claims. And lastly, Bruenig writes that that poor family would “also have the pleasure of seeing their current federal income tax rate of 10 percent bump up to 15 percent.” Well, yes, but his entire piece is premised on the idea that they don’t owe any federal income taxes in the first place, and aren’t close to doing so.
Meanwhile, people earning upper-middle-class incomes that Bruenig thinks will be the new reformocon welfare queens would see their taxes rise in other ways, though if they’re parents, they would see an increase in compensation for the cost of raising children. They currently don’t get very much help in that regard at all, except in terms of saving for college, while low-income households already get a great deal of benefits tied to having children. Moreover, Lee has talked about limiting the mortgage-interest deduction and eliminating the deduction for state and local income taxes — which should raise taxes on the people Bruenig is trying to claim are the big beneficiaries here, middle- and upper-income earners — and the plan would raise the statutory rate on most of them, too.
Bruenig sums up his view of Lee’s plan: “Although a massive expansion in child-related welfare spending is a great idea, the restrictions the reform conservatism plan places on who can claim these benefits leaves poor families totally out in the cold.” Maybe Lee’s plan isn’t generous enough to the very-poor for Bruenig’s liking, but this description is simply wrong.
The import of this isn’t just that Bruenig is carelessly criticizing the plan without having read it — it’s also that the Left apparently thinks it can repeat the same arguments against Lee’s plan and other conservative-reform ideas as if they didn’t represent innovative policy thinking. They can’t, and they do.
As an aside, it’s important to think about a more generous child tax credit as something other than ”a massive expansion in child-related welfare spending” — Stein explains well in Room to Grow why it’s actually removing distortions created by the old-age welfare system we have (and are more or less stuck with).