Columbus Foodie

Child tax credit misses many Current rules tend to leave middle class out of cuts

Chicago Sun-Times March 18, 2001 | BRIAN TUMULTY WASHINGTON John and Fran Rudig claim so many deductions and tax credits under the current federal code they owed only $579 in income taxes last year, despite having a solidly middle-class gross income of $43,000. see here child tax credit 2011

President Bush’s proposal to double the child tax credit to $1,000 from $500 would lower the tax bill for this couple from Wauwatosa, Wis., to zero because they have two daughters, ages 9 and 12.

But they wouldn’t receive the full benefit of the larger tax credit because it is not refundable to people who pay no income taxes- unless they have three or more dependent children younger than 17.

Nor would the Rudig family benefit from the parts of Bush’s $1.6 trillion tax relief plan that reduce marginal income tax rates and provide marriage penalty relief for some dual-income couples-unless their family income takes a jump in coming years.

The nonpartisan congressional Joint Committee on Taxation estimates that by 2002 there will be 19.3 million families-about half of the 39.4 million tax filers who will claim dependents under age 17- who won’t be eligible for the full $500-per-child tax credit because they either earn too much or too little.

By 2010, about two-thirds of families with children under age 17 won’t qualify for the full $500 tax credit, the joint committee estimates.

“It does kind of say that you need to step back and ask what is happening here,” said Lindy Paull, the joint committee’s chief of staff. “This particular element of the tax system is not indexed for inflation.” If the child tax credit is doubled to $1,000 without changing the eligibility rules for families to claim it, even higher percentages of Americans won’t be able to receive the full benefit. here child tax credit 2011

Paull said her committee has not estimated exactly how many families would not be able to claim the full $1,000 child tax credit.

Bush has proposed expanding eligibility by allowing high-income families earning $200,000 to claim a full $1,000-per-child tax credit by 2006, tax experts said. That would significantly hike the current income limit of $110,000 for couples and $75,000 for single parents.

But Bush would not make the child tax credit refundable for families who owe no income taxes, such as the Rudigs.

“I definitely would like it refundable,” said John Rudig, a 43- year-old driver for a wholesale plumbing supply company in Milwaukee who describes himself as Republican.

Democrats such as Len Burman, a former deputy assistant Treasury secretary for tax analysis under Clinton, said there should be room for a refundable child tax credit under Bush’s plan.

“If you are going to give away a trillion dollars, it would be nice to reduce income inequality, which has been growing over time,” Burman said. “Try to tell that person who has $43,000 in earnings that he doesn’t pay taxes and he can show you a pay stub with $3,000- plus in payroll taxes he pays. He also pays excise taxes and other taxes as well.” Harvard University professor David Ellwood told the Senate Finance Committee recently that Congress should consider simplifying the tax code.

The current code contains a “middle-class parent penalty” for families earning between $30,000 and $60,000, Ellwood said. Tax laws provide more relief to lower-income families eligible for the earned- income tax credit and higher-income families facing higher marginal tax rates, he said.

“We give the most support to the working poor and the wealthy and the littlest support to the middle class,” Ellwood said.

BRIAN TUMULTY