September 12, 2017

How pro-poor will Trump’s Child Tax Credit expansion be?

The Trump administration’s enthusiastic push to double the Child Tax Credit (CTC) and institute first-dollar refundability remains one of the most under-appreciated developments in tax reform. As I noted Friday, the silence has been particularly deafening among progressive and anti-poverty groups. Not unsurprisingly. To the extent that they’ve been shutout from reform negotiations, they are probably less than eager to buck the powerful institutional inertia pushing them to maintain a monotone chorus of resistance.

That said, by any reckoning, Trump’s CTC proposal has a shot at being incredibly pro-poor. How pro-poor? My favorite sociologist Joshua McCabe charted a comparison of the status quo against a Trump CTC expansion that also eliminates the dependent exemption:

This is for a family with one child. Because the Trump proposal links refundability to the 15.3% payroll tax, you can think of it as zeroing out all payroll tax for single-child households on the first $13,000 in earnings, or the payroll tax for first $26,000 in earnings for two-child households, and so on. As the chart shows, even with the simultaneous consolidation of the dependent exemption, a recommendation McCabe and I have both made in the past, all but the wealthiest households would be made better off. For single-child households, this will have the largest relative impact in the $0 to $13,000 range, since this is the range where eliminating the $3,000 minimum earning requirement makes a big difference in credit size relative to income. These are minimum wage and part-time working parents for whom $1,000 extra is a significant boost.

To illustrate, consider a two-parent, one-child household that earned $3,000 in a given year. They are currently neglected by the CTC altogether. However under Trump’s proposal, this family would instead receive a $459 credit, or a full 15.3 percentage-point increase in take-home pay. A one-child household with $13,000 in earnings is already eligible for the full $1,000 credit under the status quo. Doubling the credit and beginning refundability at the first dollar means this family would experience a straightforward doubling in its credit, equating to a seven percentage point increase in after-tax income.

But what if the Trump administration doesn’t get the full CTC expansion they’ve asked for? Earlier today, the Tax Policy Center released a slate of new estimates for CTC reform options, focused on the creation of a new refundable tax credit for young children. This could be a potential Plan B for the administration, since restricting expenditures to children under five would substantially reduce total cost while remaining a large enough credit increase to have a meaningful impact.

In any case, my only point is that a) the CTC debate has moved from being one of “should we increase the CTC” to “how large and progressive of an increase can we afford given competing priorities?”, and b) that this is a big deal. Think back to the original Trump child tax deduction proposal from 2016. It received hatred from every corner of the media for being designed to benefit the rich, to which I contributed, as well. But now the CTC proposal being pushed by the First Daughter flips the distributional impact on its head. And the media’s response? Crickets.

Of course, there are many other important pieces to tax reform that bare on the lives of poor people, like the ludicrous proposal to preemptively audit EITC recipients. But let’s acknowledge the good ideas, as well. If not out of intellectual consistency, then at least out of a belief in the psychological power of positive reinforcement.

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