Are the GOP Tax Plans Looking Out for Low-Income Children and Families?

As policymakers across party lines re-examine the allocation of federal dollars within the upcoming tax bill, the stakes are high for the millions of families with young children. Research suggests that investing in early childhood can narrow the achievement gap, improve health outcomes, and strengthen the economy overall, but it’s unclear whether Congress will make children and families a priority in tax reform. Another concern is that programs to support families could be at risk in the future because, according to analyses presented by the bipartisan Committee for a Responsible Budget, the tax reform bills under consideration are expected to add $1.5 trillion to the national debt. In the coming years, that could lead lawmakers to cut those programs to shore up the country’s finances.

Yet, while reforming the tax code is by no means the only way to help children and families, it does present some opportunities to do so.

One key policy impacting children and families that is at the forefront of tax debates is the Child Tax Credit (CTC), which is designed to offset the cost of raising children by reducing the amount of tax owed by households with children under age 17. The recently passed House Republican tax bill increases the existing CTC from $1,000 to $1,600 per child. It also maintains a provision to provide a partial refund to families that make so little money that they owe little to no federal income tax. As the Center on Budget and Policy Priorities (CBPP) explains, “the refundable portion of the CTC is limited to 15 percent of a family’s earnings over $3,000. Thus, a single mother with two children and earnings of $10,000 is eligible for a CTC of $1,050, or $525 per child, rather than for the $2,000 ($1,000 per child) that a middle-income family with two children receives. Because of the credit’s slow phase-in for working families with low incomes, families with two children do not receive the full credit of $1,000 per child until their earnings reach $16,333.”  

Rather than extending the credit to families making under $3,000, making the credit fully refundable, or speeding up the phase-in of the credit—all of which could help low-income families—the House bill extends qualification for the credit to married couples with two children earning between $150,000 to $294,000 so that more higher income families will benefit. For more details on why low-income families are unlikely to benefit from the House Republican bill, check out CBPP’s detailed analysis.

Similarly, the latest Senate Republican tax bill also extends the eligibility of the CTC to families with higher incomes. Under the Senate bill, families with incomes up to  $500,000 would be eligible for the full credit. The bill increases the CTC from $1,000 to $2,000 per child, but as with the House bill, the neediest families wouldn’t see a substantial increase. As shown in the analysis below from CBPP, the increased credit also does very little to help low-income families.

This morning, former Rep. George Miller [D-CA] and former Sen. Rick Santorum [R-PA], who are often on opposite sides of the political spectrum, wrote a letter urging congressional leadership to take their reforms to the CTC further.  Last month, the Bipartisan Policy Center’s Early Childhood Initiative, which Miller and Santorum co-chair, released a series of policy recommendations for supporting families with young children in their report, A Bipartisan Case for Early Childhood Development. They propose more meaningful changes to the CTC, including making it fully refundable, beginning phase-in with the first dollar earned, instead of at $3,000, and speeding up the phase-in rate. Such reforms to the CTC are essential if the credit is to truly help low-income families. The report also suggests that families with children through age 5 be eligible for a tax credit of up to $2,500 per child instead of $1,000 because of the high costs of raising young children. Lastly with regards to the CTC, Santorum and Miller suggest in their letter “that Congress adopt a more modest increase than the $500,000 cap (included in the Senate bill) so that CTC resources can be better targeted to low- and middle-income families working hard to provide for their families.”

While these changes could help low-income families, a more generous  and better targeted CTC on its own is not enough to alleviate the challenges many families with young children face.

Thus, the Bipartisan Policy Center report makes a series of additional recommendations,  including reforms to the Child and Dependent Care Tax Credit (CDCTC). This tax credit specifically helps working families cover the cost of child care, which is  approaching on average $20,000 annually in some states. Child care expenses eligible for claim under the CDCTC are limited to $6,000 per family---$3,000 per child. The credit is not currently subject to inflation. The CDCTC is currently non-refundable, so low-income families who may not earn enough to owe federal income taxes don't benefit. Additionally, families where only one person in the household works or goes to school are not eligible to claim the credit. According to analysis by the Urban-Brookings Tax Policy Center,  those who do benefit from the credit only receive $554 per year on average.

The Bipartisan Policy Center recommends making the CDCTC fully refundable and doubling the amount of child care expenses eligible for the credit to $6,000 for one child (age 5 and under) and $12,000 for two or more children. This recommendation would help families meet the current financial realities of child care costs. However, the benefits of the credit will still come only once a year, meaning parents will have to front the costs of child care, which can be difficult for families trying to make ends meet.

Santorum isn’t the only member of the GOP interested in better targeting the CDCTC to help low-income families. The PACE Act, introduced earlier this year by Representatives Kevin Yoder (R-KS) and Stephanie Murphy (D-FL), is another bipartisan effort to strengthen early childhood development. It recommends making the CDCTC fully refundable, increasing the value of the credit, and indexing it to inflation to keep pace with the rising costs of child care. Reforming the CDCTC was also originally part of Ivanka Trump’s plan for helping working families. Unfortunately, the current iterations of the House and Senate tax bills do not expand or improve the CDCTC.  

The GOP tax bills miss key opportunities to help families get their young children off to a strong start. Amy Matsui at the National Women's Law Center breaks down additional ways that provisions in the bills could harm children's well-being. As the Bipartisan Policy Center explains, “early childhood development is the type of issue that ought to unite lawmakers across the political spectrum given the enormity of the stakes.” While tax reform is only a small part of what Congress can do to help support young children, the GOP should take a more bipartisan approach and utilize this opportunity to ensure that changes to the tax code target those who need it most.