Bipartisan Senate duo Michael Bennet and Mitt Romney have a new proposal to substantially boost the child tax credit as part of a new round of tax reform. I’m generally a fan of the credit but have mixed feelings about some of the particulars here.
A quick background primer: The current credit is worth up to $2,000 per child, and it’s partially “refundable” so that families without much income-tax liability can still benefit from it. In essence, the refundable portion allows these families to get a refund for some of their payroll taxes in addition to their income taxes. (The Rubio-Lee amendment from 2017 would have made all payroll-tax liability eligible for the credit, but it failed.) Nonetheless, a lot of the poorest parents are not included or benefit very little, because they don’t have a ton of payroll-tax liability, either.
The new proposal makes a number of changes. For one thing, the credit would rise to $2,500 for kids under six. And for another, much of the credit would become “fully refundable.” This means parents would get the money whether or not they had any tax liability at all. The fully refundable amounts would be $1,500 until age six and $1,000 thereafter.
A fully refundable child tax credit makes sense in some ways, especially if it’s paired with other reforms to the safety net; I mapped out some of the concept’s complications back in 2014 if you’re interested. (I’d explain them all again, but my wife and I have a three-week-old tax credit of our own and I don’t have the energy.) But the child tax credit always divides the Right — some conservatives don’t think it should even exist, and the credit’s supporters disagree on its justifications — and this particular proposal will ruffle a lot of feathers. It basically amounts to a small universal basic income for parents: free money from the government, no questions asked.
Bennet-Romney also has some pay-fors that will raise eyebrows.
In addition, the bill would kill the “stepped up basis” for capital-gains taxes on inherited assets (with a “$1.6 million exemption for individuals and an additional $3.7 million exemption for spousal inheritance”). In other words, the “gain” on these assets would be measured starting from the time the deceased originally purchased it, not from the time it was inherited. Under the current system, by contrast, any gains that occurred while the decedent was alive go completely untaxed.
This change is good tax policy! There are some tradeoffs involved, but it makes no sense to exempt billions in capital gains from taxes so that rich kids can inherit more. But I expect certain corners of the Right to hate it.
Bennet-Romney might fare better than Rubio-Lee did with Democrats, who didn’t want to help pro-family Republicans add a popular provision to the 2017 tax law. But I think it will have a rougher time gaining support on the right, because full refundability is a very different concept from the payroll-tax refunds Rubio and Lee proposed. “This isn’t tax relief; it’s just welfare” is a much easier talking point to advance this time around.