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November 30 2017

Rubio-Lee child tax credit isn't the only way to help struggling families

via The Hill
by Carrie L. Lukas

You wouldn't know it from the media's coverage of the tax bill, but families with children will be among the biggest winners if this tax reform package becomes law.

Both the House and Senate bills dramatically expand child tax credits, from $1,000 to $1,600 in the House version and to $2,000 in the Senate's bill.  This means that a middle-income family with two kids could save between $800 and $2000, from this one provision alone.  

Senators Rubio and Lee want to do more to help families with children, particularly lower-income families who won't benefit fully from these tax credit increases because they already have little to no income tax liability and only a portion of the tax credit is refundable (in the House bill, the first $1,000 of child tax credit would become refundable). Rubio and Lee want to make the child tax credit apply not just to income tax liabilities, but also to payroll taxes, which would benefit millions of lower-income families.

Helping families who are struggling most certainly sounds like a good idea.  However, this reform overlooks that payroll taxes have a very different purpose than regulator income taxes.  Workers pay payroll taxes specifically to support the Social Security and Medicare programs, which they then expect to be able to draw benefits from during retirement.  Making these deductions apply against these payments undermines the idea that Social Security and Medicare are earned benefits with separate funding streams.

To offset revenue lost by making these tax credits refundable, Rubio and Lee propose increasing the corporate tax rate:  Rather than cutting the corporate tax rate from its current 35 percent to 20 percent, they propose reducing it to 22 percent.  The political appeal of this solution is obvious:  The Senators are positioned as the champions for poor children over big, faceless corporations, which, the argument goes,  should surely be able to shoulder a 2 percentage point higher tax rate to help the kids.  

That makes for a nice political statement or advertisement, but it doesn't reflect reality.  Higher corporate tax rates don't just hurt shareholders and well-paid executives.  They impact workers at all levels, including people who are currently out of work or only working part time.  Reducing corporate taxes will allow businesses to pay more and hire more, which is good news for those struggling in today's economy.  

Policymakers from both sides of the aisle have recognized that our too high corporate tax rate has been strangling economic growth, leading to fewer jobs in the United States and slower wage growth.  Shrinking the proposed rate reduction will mean that we will sacrifice some of these benefits and have less economic opportunity, which is particularly important for those who want to climb the economic ladder.  

This doesn't mean that Congress shouldn't be trying to provide greater financial assistance to lower income workers, particularly those with children.  After all, society benefits from investments made in the next generation, and we want kids to have the resources that they need to flourish.

But rather than increasing the corporate tax rate, the Senators should make the case that Congress should reforming spending programs to free up resources to help these families.  According to the Urban Institute,about a tenth of the federal budget, or $377 billion, is spent on children, and the majority of that is targeted to lower-income children.  Unfortunately, some of this funding never reaches these families, but is instead eaten up by inefficient bureaucracies.  

Ask lower income families if they'd rather have more government programs or more money in their pockets, most would surely choose the later.  Congress should take a serious look at all these programs, identify those that aren't working and providing real value, and consider how they could instead return these resources to the people that they are supposed to help, but often fail to.  

It's admirable that Senators Rubio and Lee want to do more to help struggling families.  They should take heart though that it's not just the child tax credit that will benefit families with children:  The entire tax reform package will do so by creating a better economic environment that will lead to more and better job opportunities, which are the real keys to improving people's financial situation, permanently. 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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