Tax: No Child Care Credit Increase for $10-26K families

[Timber Loftis]

Tax Law Omits Child Credit in Low-Income Brackets
By DAVID FIRESTONE

WASHINGTON, May 28 — A last-minute revision by House and Senate leaders in the tax bill that President Bush signed today will prevent millions of minimum-wage families from receiving the increased child credit that is in the measure, say Congressional officials and outside groups.

Most taxpayers will receive a $400-a-child check in the mail this summer as a result of the law, which raises the child tax credit, to $1,000 from $600. It had been clear from the beginning that the wealthiest families would not receive the credit, which is intended to phase out at high incomes.

But after studying the bill approved on Friday, liberal and child advocacy groups discovered that a different group of families would also not benefit from the $400 increase — families who make just above the minimum wage.

Because of the formula for calculating the credit, most families with incomes from $10,500 to $26,625 will not benefit. The Center on Budget and Policy Priorities, a liberal group, says those families include 11.9 million children, or one of every six children under 17.

"I don't know why they would cut that out of the bill," said Senator Blanche Lincoln, the Arkansas Democrat who persuaded the full Senate to send the credit to many more low income families before the provision was dropped in conference. "These are the people who need it the most and who will spend it the most. These are the people who buy the blue jeans and the detergent and who will stimulate the economy with their spending."

Ms. Lincoln noted that nearly half of all taxpayers in her state had adjusted gross incomes that were less than $20,000.

Families with incomes lower than $10,500 will also not receive the refund checks. But under the 2001 tax revision, they would not have been eligible for either the $600 or the $1,000 credits because they do not pay federal taxes. Proposals to give them the credits failed on the House and Senate floors on party-line votes.

The Senate provision that did pass was intended to help those families making $10,500 to $26,625 who do pay federal taxes and could have taken all or part of the $600 credit. The provision, which would have cost $3.5 billion, would have allowed those families to receive some or all of the extra $400 in the new law.

Most families with children who make about $30,000 or less are also eligible for the earned income credit, which the law does not not change. In addition, the law has a few other benefits for low income earners, like expanding the lowest tax bracket and a temporary reduction in the penalty on two-income couples.

Several centrist senators worked hard to make the child credit fully refundable for all low income families, and the full Senate voted this month to include a provision that would have included the minimum-wage families. But the provision was dropped in the House-Senate conference, where tax writers spent days trying to cram many tax cuts — most prominently, cuts in the taxes on stock dividends and capital gains — into a bill that the Senate said could not be larger than $350 billion.

House Republicans, who acknowledged the gap on the child credit, blamed the Senate for insisting on its $350 billion cap, saying the low-income families could have been covered had the Senate been more flexible.

A spokeswoman for the Republicans on the House Ways and Means Committee, Christin Tinsworth, noted that the provision was included in an agreement reached last week by Representative Bill Thomas, Republican of California, the committee chairman, and Senator Charles E. Grassley, Republican of Iowa, chairman of the Senate Finance Committee.

That agreement would have cost $380 billion, but it fell apart when an important swing senator, George V. Voinovich, Republican of Ohio, said he could not approve any bill that exceeded $350 billion. To satisfy him and the Senate, Ms. Tinsworth said, the child credit provision was dropped, along with other costs.

"The Senate preferred to have $20 billion in state aid," she said. "But when we had to squeeze it all to $350 billion, they weren't talking about the child credits. This bill does a lot to help people who need help. But its primary purpose was to generate jobs. Apparently, whatever we do is not going to be enough for some segments of the population."

But Democrats and children's advocacy groups said the Republican demand for large cuts in the dividend tax, which they said benefits primarily wealthy taxpayers, pushed away the credit from low income families.

"If we were going to have a tax cut to give $1,000 to all these other kids, there's no reason not to include these kids, too," said David Harris, president of the Children's Research and Education Institute. "Their families are working and playing by the rules and are left out, though it would not have cost too much to include them."

A spokeswoman for Mr. Voinovich said the senator would have been happy to extend the child credits, but believed that the entire package should not pass $350 billion. The tax writers were free to reduce the dividend tax cut, noted the spokeswoman, Marcie Ridgway.

The gap in the number of families who receive the child credit occurs because of how the formula was arranged in 2001. Congress decided then to give refunds of the credit to low income families, but just to a maximum of 10 percent of the amount they made over $10,000, or a refund of $600, whichever was lower. The $10,000 amount was indexed to inflation and is now $10,500.

When the credit was raised to $1,000, many families could not qualify for the extra amount, because the 10 percent maximum still limited them. Ms. Lincoln proposed raising the formula to 15 percent, which would have covered the increase in the credit for most of those families. Her proposal made it through the Senate Finance Committee, but later she voted against the full cut.

Because her vote and those of other supporters were not necessary for final passage, Republicans knew they could drop the provision without hurting the bill's chances in the Senate.

"I guess this shows us what our priorities are," Ms. Lincoln said. "I think this tax bill is very irresponsible in the way it treats families."

[Rokenn]

So much for helping out the working poor.

[Attalus]

It's easy to pick holes an a bill this large and complex, but it's main flaw is that it should be twice as big.

[Timber Loftis]

Originally posted by Attalus: It's easy to pick holes an a bill this large and complex, but it's main flaw is that it should be twice as big.

Not unless spending is cut. I'm not for returning one red penny to taxpayers unless it represents one less penny of government waste spending. Wouldn't you agree? Irresponsible use of credit will get anyone into trouble.

[Attalus]

Oh, yes, I agree that massive spending cuts are necessary, but the Bushies did the best thing to stimulate the economy, IMHO, and after 2004, go after deep cuts. A big victory for the Administration.

[Chewbacca]

The last two "tax-cuts" have not been the stimulus that they were made out to be, why should this one be any different?

The mere fact that this measure only had a one vote majority in the Senate, thanks to the VP, made me suspicious of it already. Not to mention to rumors of overwhelming deficit.

I dont consider overlooking 1 of 6 children under age 17 a "hole" but a travesty just like firehouses closing in NY and music, art and drama no longer being taught in many schools. Another in a long lines of Ooooops!

Add it all together and the only thing to look forward to is another year of empty conservative optimism of an economic stimulus that was supposed to happen 2 or 3 years ago. Maybe its not "third strike your out" as far as Bush's "stimulus tax cuts" goes...but we will see!

[Arvon]

Most if not all of the people in that income bracket don't pay taxes anyway, how can there be a tax credit?

[Timber Loftis]

Originally posted by Arvon: Most if not all of the people in that income bracket don't pay taxes anyway, how can there be a tax credit?

The $10.5K to $26K folks *do* pay taxes. Even if they're only paying 20%, that's still over $4K a year. Nothing to sneeze at and call "nothing." The folks below $10.5K don't pay taxes, and they don't qualify for the credit either.

BTW, a "credit" is not a "deduction." Deductions can only get your tax burden down to zero, and each dollar of deduction only garners you a tax savings of the % tax burden you carry, be it 10%, 20%, or 35%. A credit, on the other hand, can get you into the "gaining money" realm, and it is either a specified amount (as child care credit) or a 1:1 tax savings per dollar spent (as with the lifetime learning credit).

According to Arie Fleischer (sp?) tonight on ABC radio news, the people in the brackets that get no return pay $0 in income tax, according to him they don't get the extra cash because they will be paying nothing in to start with.

So either he was lieing or is woefully misinformed on the subject.

Originally posted by Chewbacca: The last two "tax-cuts" have not been the stimulus that they were made out to be, why should this one be any different? Would you kindly post your figures on this and their source? I know the cuts in the 1980's ended up with the federal revenue more than doubling...so that seems like a pretty successful tax cut to me. AND if tax cuts are bad, then tax increases must be good..so how come no democrat is campaigning for higher taxes? After all the Dem party is advertising that people don't mind paying taxes and don't want cuts any way, that they would rather let the government spend it..so why notput their money where their hooves are?