The child tax credit is near and dear to the hearts of certain family-oriented conservatives (including yours truly). It compensates parents — okay, including yours truly — for the work they do raising the people who will fund Social Security and drive economic growth in the years ahead, and it makes it marginally easier for people to choose parenthood to begin with.
The current Senate tax bill would double the credit to $2,000, but it wouldn’t change the fact that the credit often isn’t “refundable,” meaning that if someone doesn’t have enough tax liability to offset, they can’t get the credit. (I sketched out a broad approach to the refundability question a few years ago here.)
Senators Marco Rubio and Mike Lee are now introducing an amendment that would expand the credit to more lower-income taxpayers, making the credit refundable against payroll taxes and not just income taxes. Workers pay a 15.3 percent payroll tax (including employer-side payroll taxes, which economists tend to believe are actually paid by workers in the end), and under this change, the child tax credit would be applicable to those tax dollars.
This isn’t a night-and-day difference. Currently, the refundable portion of the credit starts at $3,000 in income (instead of the first dollar) and phases in at a 15 percent rate (as opposed to the 15.3 percent rate of payroll taxes). But the gaps between those numbers can add up for poorer families.
The amendment shifts more tax relief to lower-income parents. It would be paid for by reducing the corporate tax rate from 35 percent to 22 percent, instead of the current bill’s 20 percent, and by reducing the credit’s phase-out threshold for parents who aren’t married or don’t file jointly to $250,000 (which eliminates the marriage penalty). Sounds like a good trade to me.
Update: I’ve tweaked the last paragraph to better reflect how the amendment addresses the marriage penalty.