Why Middle Class Tax Relief Is Taking Center Stage
Policy + Politics

Why Middle Class Tax Relief Is Taking Center Stage


As both political parties work to portray themselves as champions of middle-income families hurting from wage stagnation and unemployment woes, now comes a new development. 

Congressional Democrats on Wednesday unveiled a package of proposed tax breaks for the middle class. They’re seeking to upstage the new Republican leadership on one of the hottest economic issues heading into the 2016 presidential campaign.

Related: Obama’s New Tax Plan: So Much for Middle Class Economics  

In his fiscal 2016 budget plan, President Obama outlined a number of tax credits and breaks to assist working parents with child care, as well as assist childless couples who are both have jobs. And House Ways and Means Committee Chair Paul Ryan (R-WI) told reporters last month that he hoped to move forward on individual income tax relief by late summer or early fall. 

Three members of the Senate Democratic leadership, Sens. Richard Durbin (IL), Charles Schumer (NY) and Patty Murray (WA), are leading the effort to challenge Republicans to join them in a new approach. It would target middle class families over wealthy Americans in overhauling the tax code, according to The Hill.     

Democratic Reps. Lloyd Doggett (TX), Richard Neal (MA), Rosa DeLauro (CT), and Sander Levin (MI) all joined their Senate colleagues in introducing the bills. 

“The expansions of these tax credits are of vital importance to tens of millions of families, and it is critical they be extended,” said Levin, the ranking Democrat on the Ways and Means Committee, in a statement. “While the American economy has made significant strides …  many middle class families have been left behind. These tax credits are a priority that should be addressed in tax reform to give families the certainty they need to succeed.” 

Related: Ryan Shoots for Tax Reform within Seven Months

The measures are designed to extend beyond 2017 the Earned Income Tax Credit and Child Tax Credit expansions and the American Opportunity Tax Credit for college; to expand the Child and Dependent Care Tax Credit; and to create a new 21st Century Worker tax cut. 

“Our economy has changed a lot in the last few decades, and it’s time for our tax code to change with it,” Sen. Patty Murray said in a statement. “Wages for middle class families have been flat even as costs like child care have been rising. And while Republicans continue to call for more tax cuts for the wealthiest Americans and biggest corporations, I’m proud to introduce middle class tax cuts that will reward families for their hard work…” 

The Democratic lawmakers provided no long-term price tag for their package. Obama's proposed budget calls for a total of $1.5 trillion in new taxes over the next decade, mostly on corporations and high-income households. He’d use much of that to pay for targeted tax breaks for low- and middle-income families, similar to what the Democrats are suggesting. 

Among the proposals: 

The Working Families Tax Relief Act: Designed to broaden the Earned Income Tax Credit and Child Tax Credit. It would make permanent the expansions of the two credits that took effect in 2009, and would expand EITC for workers without children, index the child tax credit to inflation, and make it easier for working Americans who qualify to claim the EITC.

Related: 5 Stupid Tax Proposals Hidden in Obama’s Budget 

American Opportunity Tax Credit: Would take the existing educational tax credit a step further. For every dollar a family spends on college tuition they’d get a dollar off their taxes up to $3,000. The original AOTC tax credit is currently only available to families earning less than $180,000 per year and provides a tax credit of up to $2,500. The new bill would grow the savings a family can receive per student to $3,000 per year and make the credit available to families earning up to $200,000 per year. 

21st Century Worker Tax Cut Act: Would introduce a new tax credit for parents who both work. The credit will help reduce the large – sometimes insurmountable – extra costs that come when both parents are working, such as child care, transportation, and a higher marginal tax rate.  The credit is calculated as 10 percent of the first $10,000 of the second earner’s income.  

Helping Working Families Afford Child Care Act: Would overhaul the Child and Dependent Care Tax credit so that it delivers a larger benefit to more families. The allowable expense limit would be raised to $8,000, an amount is much closer to the average cost of childcare today. Moreover, the credit rate would be flattened at 35 percent for most middle-income families, and the credit will be refundable, so that low-income families can benefit as well. Today, most families get only a $600 credit; with these reforms, the credit will be $2,800 for most low and middle-income families. 

Top Reads from the Fiscal Times: