January 22, 2024

The Bipartisan Child Tax Credit

A new deal expands the credit, though not as far as Democrats wanted.

For all of you parents out there, the child tax credit may be one of the few, if not only, things you can stomach about filing taxes. That credit isn’t a deduction; it comes right off the top of what you owe. Well, there’s a bipartisan deal to expand that tax credit, at least for the next two years.

When the tax credit allows parents who work for a living get to keep more of their own money, it’s a win. When it pays people who don’t actually pay federal income taxes, not so much.

We’ll start with the bad news. Democrats want to increase the portion of the child tax credit that is “refundable,” which is Washingtonese for paying people beyond their income tax liability. Democrats want to reduce the earnings necessary to qualify for $1,600 of the $2,000 tax credit from $34,500 all the way down to $13,000. People at that level don’t pay income taxes. Instead, they receive money.

The American Enterprise Institute says these kinds of games have already been played with pandemic relief. Explaining the American Rescue Plan, AEI notes: “A parent with two children could have collected over $20,000 in EITC and CTC benefits for 2020 and 2021 despite not working those years. That’s on top of expanded unemployment benefits (which in just an average state could total over $46,000 per person) and stimulus checks worth over $11,000 for a family of four, among other benefits. Add it all up and nonworking adults could have easily exceeded their former annual income — without working at all.”

Democrats want to keep playing Santa Claus with taxpayer money because they buy votes with such income redistribution. Unfortunately, such policies cause some people to stop working, or at least earning beyond the minimum threshold, which hurts the economy and upward mobility, not to mention shrinks the tax base.

“Charity,” said James Madison, “is no part of the legislative duty of the government.”

On the plus side, House Republicans blocked Democrat efforts to reinstate pandemic policies making the child tax credit fully refundable and sending it out in monthly checks. They secured an equal amount of deductions for business taxes that will increase investments and jobs while canceling other pandemic measures to ensure the bill is revenue-neutral.

Also on the partially plus side, House Republicans index the credit to inflation, though without increasing it to account for the 17% cumulative inflation Joe Biden’s policies created.

That inflation is killing family budgets, but it’s also blowing up the federal debt, which recently surpassed $34 trillion. That debt jeopardizes the Republican tax cuts of 2017, which expire in 2025 without an extension.

If Democrats win in 2024, taxes are going to go up for millions of Americans, all while Democrats redistribute income to those who aren’t paying taxes in the first place.

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