Parceling Out the Credit

by Ramesh Ponnuru

An email:

I’ve been following what you’re writing about the child tax credit, but I don’t think I’ve seen you explain why parents who are too poor to pay any taxes should [not] get the credit. They are contributing to the future of Social Security, too, by raising kids. So why shouldn’t they be eligible for the credit by your logic?

As it happens, another reader raised this exact issue in NR’s June 11, 2012, issue, so I hope you won’t mind if I just quote my response from then: “The argument for the large tax credit is that taxpaying parents are overtaxed relative to non-parents. They are contributing to the future of entitlement programs with both their taxes and their investments in their children, whereas the childless [taxpayers] are only contributing with their taxes. The tax credit recognizes that double contribution. A family that doesn’t pay taxes is still making a contribution to the future of the entitlement programs. . . . But it is not making a double contribution—in that respect it’s in the same position as a childless taxpayer—and so there’s nothing to offset.”

The argument, then, implies that the tax credit should be, to use the standard jargon, “partially refundable.” A taxpayer should be able to use it to get his tax liability—income tax plus payroll tax*—all the way to zero. But not below zero. If, for example, the employer credit has already wiped out all tax liability, the argument would not justify giving a household a child credit too.

* That should include the “employer’s share” of the payroll tax, which is just a hidden tax on employees.