Why the Child Tax Credit Could Make or Break the GOP Plan

Why the Child Tax Credit Could Make or Break the GOP Plan

Andrew Rich/iStockphoto

The Trump administration is portraying its tax plan as a boon for the middle class, but many of the clearly-defined policy changes outlined in the Republican tax framework — including repealing the Alternative Minimum Tax and the estate tax, and reducing pass-through and corporate tax rates — primarily benefit high-income households. (Treasury Secretary Steven Mnuchin broke with the official spin last week when he admitted, “Obviously, the estate tax, I will concede, disproportionately helps rich people.”) According to Ernie Tedeschi, a policy analyst at the investment bank Evercore ISI, that leaves one policy change that could make a serious difference for how middle-class households fare under the GOP plan: the child tax credit.

The current tax framework calls for expanding the child tax credit, though the size of the expansion is undefined. In an analysis in today’s New York Times, Tedeschi argues that simply raising the credit from its current level of $1,000 per child won’t do much, because many lower- and middle-class households have no federal income tax liability. By making it refundable or applicable against payroll taxes, the credit would reach far more families and create a larger income boost overall. Sens. Marco Rubio (R-FL) and Mike Lee (R-UT) proposed something along these lines in 2015: an increase in the credit to $2,500 per child that could be applied to both income and payroll tax liability. That plan would have a “drastically larger” benefit, Tedeschi says, though it would cost about $1.4 trillion over 10 years — a price tag that may be a deal-breaker for some members of Congress.

But if Republicans want to significantly reduce taxes for middle- and working-class families — and to refute the claim that their tax plan is really just a give-away to the rich — the child tax credit offers them one option to do so.