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Timothy P. CarneyMarch 08, 2024
Children are pictured in a file photo playing on swings at a park in Baltimore. On Jan. 31, 2024, the House passed with broad, bipartisan support a $78 billion tax cut package that would enhance the child tax credit for millions of lower-income families. (OSV News photo/James Lawler Duggan, Reuters)

A child tax credit, at first glance, should be an easy sell to conservatives: It’s pro-family and it’s a tax cut. Isn’t that the essence of the G.O.P. and the conservative movement? It’s not quite that simple, though, once you get down to the details.

For starters, tax credits have a mixed reputation with conservatives. One fundamental principle of conservative tax reform is that the tax code should be as simple as possible. Politicians, however, love rewarding special interests with special tax breaks—thus tax breaks for buyers of electric cars, tax breaks for mortgage interest, tax breaks for solar panels. Picking winners and losers, even through lower taxes, amounts to government meddling in people’s lives or businesses.

On those grounds, some conservatives have opposed the very existence of a child tax credit. It “exists to transfer wealth to a preferred group (human families) from an undesirable one (childless superconsumers),” objected Wall Street Journal writer Adam O’Neal in 2017, when Congress was gearing up to expand the credit to $2,000. Mr. O’Neal wryly suggested that a puppy tax credit had as much merit as a child tax credit.

Another sticking point with the child tax credit is its “refundability”: Parents can get a tax credit that exceeds their tax liability. That makes the credit at least partly a transfer payment rather than a tax cut.

That’s why conservatives remain divided these days, as lawmakers in both chambers and from both parties are considering a bill to expand the child tax credit. The deal crafted by Sen. Ron Wyden, a Democrat from Oregon, and Rep. Jason Smith, a Republican from Missouri, would index the credit for inflation and expand the refundability for lower-income families.

Some conservatives worry that the work requirements in the deal are too porous, because they would allow parents to work only every other year and yet still claim the credit every year. Others simply object to expanding the credit in the first place, because they consider it another special-interest giveaway.

The debates over work incentives are tricky, but conservatives—even fiscal conservatives—should agree not only on the basic issue of preserving but also expanding the support to families. A child tax credit itself is a matter of basic fairness.

Before the Tax Cuts and Jobs Act of 2017, families benefited from dependent exemptions, which were a separate thing from the standard or itemized deductions. The exemption was, in effect, a zero-percent rate. While some conservatives argued that everyone should pay some taxes—that is, everyone needs to have “skin in the game”—the personal and dependent exemption reflected a moral precept that conservatives should embrace: In a wealthy country, the government shouldn’t get any of your earnings until your basic needs are taken care of.

When the 2017 measure doubled the standard deduction, it also abolished the personal and dependent exemption. For individuals or childless couples, this was a break-even change. But for parents, losing the dependent exemption was a loss—except that the measure also increased the child tax credit to $2,000.

A $2,000 child tax credit basically equalizes the tax treatment of five adult taxpayers and a family of five. The objections to even a $2,000 tax credit treat children as just another consumption item. The tax code shouldn’t prefer electric cars over regular cars, so why should it prefer parents over non-parents? It’s a perverse logic that equates kids with Teslas.

Of course a household of five with an income of $100,000 should pay less in taxes than a solo individual with $100,000 in income.

The next step is increasing the dollar amount a bit. That’s also a matter of basic fairness. The child tax credit has been at $2,000 per child since 2018, and so thanks to extraordinary inflation, its value has gone down by 15 percent. The Wyden-Johnson bill adds only $100 to the credit next year, but then indexes it to inflation after that.

Then there’s the issue of refundability. One key point for conservatives to recall is that for most Americans, most of the taxes they owe Uncle Sam are not income taxes but payroll taxes—the levies that fund Social Security and Medicare. Unlike income taxes, these taxes come out of the first dollar each worker earns. As a result, many taxpayers owe zero dollars in federal income taxes, but hundreds in payroll taxes.

Consider a low-income family of four earning $40,000. In 2024, the family’s standard deduction would be $29,200, leaving a taxable income of $10,800, which at the 12 percent rate would yield a tax bill (before the child tax credit) of about $1,300, and payroll taxes of about $3,000.

A child tax credit with no refundability would zero out that $1,300 income tax but leave in place the $3,000 in payroll taxes. An expanded tax credit should be fully refundable against those payroll taxes, meaning the family gets the full $4,000 value.

 

Why should the child tax credit count against payroll taxes? Well, parents are funding tomorrow’s Social Security and Medicare trust funds by producing and raising tomorrow’s workers. The falling birth rate for the past 60 years is the chief reason Social Security is taking in less than it pays out every year. If any tax cut pays for itself, it will be a tax cut that encourages people to boost the worker-to-retiree ratio, and the best way to do that in the long run is to make babies.

That same logic argues, in general, for a pro-family tax policy. Prudent tax policy doesn’t merely consider today’s needs but also considers the future. Too-clever lawmakers use this reasoning to justify special tax breaks for Teslas or mortgages, but with a little humility, we can agree that we don’t know if plug-in cars or certain financial products are good for the future. With children, though, there’s no debate. The human species, by definition, depends on future adults, which are also known as children.

That may be a heartless way of writing about children, but after all, it’s members of the House Ways and Means Committee that we need to persuade. The best argument for a child tax credit rather than a puppy tax credit or a Tesla tax credit is that our tax code should generally be neutral, but it should always be pro-people.

[Read next: “Why Catholics should resist NIMBYism.”]

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