It’s time for Congress to create a kid-friendly tax code by strengthening working family tax credits
Karen Howard (Former Staff)Children of Immigrants Federal Budget Poverty & Family Economics Tax Policy
As this year comes to an end, Congress appears poised to extend over 50 expiring tax provisions, collectively known as the “tax extenders.” There is bipartisan support for finding a way to get this done this year. While policymakers work on year-end tax legislation, First Focus urges Congress to make our tax code “kid-friendly” by making permanent improvements to two of the most effective anti-poverty government programs: the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Taken together, the EITC and CTC act as a force multiplier in helping children and working families escape poverty, build assets, and improve their long-term health and academic achievements.
In addition, because childcare is a lifeline for children and working families, First Focus urges Congress to take further steps to help working families afford childcare by improving the Child and Dependent Care Tax Credit (CDCTC) in its tax extender package this year. First Focus sent a letter to Congress recommending improvements in these important tax programs.
The face of poverty in our nation is that of a child. According to the U.S. Census Bureau, children comprise 23 percent of the population, yet account for nearly one-third of the poor. Children of color experience the highest rates of poverty with 33 percent of Hispanic children and 37 percent each of African American and Native American children living in poverty. Child poverty constrains the lives of children from cradle to grave, and robs our nation of its human capital. Poor children are more likely to suffer from poor health, inadequate housing, lower academic achievement, food insecurity and fewer economic opportunities-all of which increase their chances of becoming poor adults.
The EITC and CTC have proven track records of helping to lift families out of poverty while encouraging workforce participation. The CDCTC helps working families secure affordable childcare, enabling them to work while their children are in safe, nurturing environments.
The EITC is a refundable tax credit for low-and-moderate-income working people. The amount of the credit, which depends on a recipient’s income, marital status and number of children, grows as an individual’s wages grow, until it reaches a maximum benefit. The American Recovery and Reinvestment Act of 2009 (ARRA) both increased the credit and extended its phase-out provisions, allowing greater benefits to families from the EITC. The CTC is a credit of up to $1000 to help offset the cost of raising children. Families with tax liabilities lower than the amount of the credit can claim an Additional Child Tax Credit, which allows them to receive a refundable portion of the credit. The ARRA enhanced the refundable credits available to families until 2017.
The positive impacts of the EITC and CTC extend far and wide. Year after year, the EITC and CTC reduce poverty. In 2013, the EITC and CTC lifted 9.4 million people out of poverty, including 5 million children and reduced the severity of poverty for another 22.2 million people, including 8.1 million children.
According to recent IRS estimates, in 2014, the EITC and CTC lifted approximately 10.1 million people out of poverty, including 5.3 million children. Groundbreaking research has recently proven that larger EITC and CTC benefits are linked to important early childhood benefits at every stage of life. These include improvements in maternal health and reductions in low birth weight and premature births, two of the largest drivers of health costs to the Medicaid program; higher test scores and academic achievement, particularly in math, for elementary and middle-school students whose families receive larger tax credits and refunds; higher high school graduation rates for children who qualify for a larger EITC during childhood; greater likelihood that children in low-income families receiving EITC and CTC to go to college as a result of improved academic performance and increased income making college more affordable; and increased workforce participation of children in families with boosted income as a result of the EITC, CTC and other tax benefits.
In addition, the EITC supports working mothers. In 2013, the incomes of over 21 million mothers were boosted by the EITC. So too were the incomes of military families, with an estimated 1 in 4 active military and veteran families receiving benefits under the EITC. These outcomes yield long-term, multi-generational benefits for children and families as well as our national economic prosperity.
Given the positive track record of the EITC and CTC, there is no reason why Congress should not act now to make the ARRA improvements permanent. There are serious consequences of its failure to act: more than 16 million people in low- and modest-income working families, including 8 million children, would fall into — or deeper into — poverty in 2018 if policymakers fail to save key provisions of two important tax credits. In addition, over 50 million Americans, including 25 million children, would lose part or all of their Child Tax Credit (CTC) or Earned Income Tax Credit.
While we urge Congress to work in a bipartisan manner to make these improvements permanent, we also urge them to go bold for children by improving the CDCTC in the extenders package. It is no surprise that affordable, quality childcare is a lifeline for millions of working families, allowing parents to secure and maintain stable employment to support themselves and their children. Because the cost of childcare is as expensive as tuition at many public colleges and universities, working families have a difficult time securing reliable childcare, and thus face challenges in maintaining employment. Congress can change this by increasing the credit to $3,000 under the CDCTC for families with children under 5 years of age and by making the credit refundable so that families with little or no tax liability can realize the benefit. This improvement would increase childcare assistance for more working families, allowing them to claim the credit for up to $6,000 of expenses per child under age 5-covering up to one-half of the cost of childcare for preschool age children.
It’s also important to note that in order to fully yield the benefits of these tax credits, particularly for children of color, we must ensure that the parents of all eligible children have access to them. This includes children in immigrant families, who now comprise 30 percent of all children in low-income families. More than 5 million children currently live in mixed-status families, and the vast majority are U.S. citizens. Immigrant parents who lack a Social Security Number often file with an IRS-issued Individual Taxpayer Identification Number (ITIN) to pay their taxes, and under current law, they are also able to claim the CTC and its refundable portion for qualifying children. We urge Congress to protect current eligibility for children in immigrant families, including eligibility for ITIN filers.
Congress has the chance in the remaining few weeks of this year to make improvements in our tax code that will have far-reaching, positive impacts on the health, academic achievements and economic mobility of working families and their children. These improvements yield benefits for our national economic prosperity and serve as a game-changer for millions of children. Millions of children and families are counting on them. We urge them to take that opportunity.
It’s time for Congress to create a kid-friendly tax code: http://bit.ly/1Q9a2ZT v/ @First_Focus #InvestInKids
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