Lower Taxes Replaces Child Tax Credit? : Reagan Economics

It seems lower taxes will solve a lot of problems that we currently have and provide a way for increased prosperity for the individual. Reform has been on the table for decades, but congress and most presidents of our past and present, can't find the will to make the necessary changes like a flat tax or a consumption tax where everyone contributes to the tax base on an equal basis as well as enjoying the benefits from having more money in there pockets to save or spend.

Convincing the general public to believe lower taxes will actually make for a better solution for prosperity by lowering the Child Tax Credit or eliminating it would be a hard sell for anyone after so many years of accepting the idea that the tax credit is the best way to help families with children.

'A bird in the hand is worth two in the bush' is at play here. Deciding to accept less now from a proposal that cannot promise results in the future is not an easy pill to swallow.

Could Lower Taxes Replace the Child Tax Credit?
Source: Jeremy Horpedahl, "The Child Tax Credit." Mercatus Center, May 2015.

May 12, 2015

First introduced in 1997, the Child Tax Credit (CTC) has grown in size and eligibility to become one of the single largest tax credits available to middle-class families. It provides qualifying taxpayers with a tax credit of up to $1,000 per eligible child under the age of 17.

The credit currently provides over $57 billion in benefits to taxpayers. This $57 billion figure is comparable to the deduction for state and local taxes ($56.5 billion) and the Earned Income Tax Credit (EITC), which provides a benefit of over $69 billion to taxpayers.
How is the credit calculated?

• For taxpayers with annual incomes of $3,000 or less, no credit is available.
• Above $3,000 of income, the CTC is phased in at a rate of 15 percent. The basic credit is limited by the amount of the taxpayer's tax liability, but there is also a refundable portion of the credit, limited to 15 percent of the taxpayer's income above $3,000.

The CTC provides a significant subsidy to almost all taxpaying families with children, and the U.S. federal and local tax codes contain many other provisions that subsidize child rearing. Taken together, the CTC subsidy to families with children has grown to nearly $60 billion, placing it among the list of the largest "tax expenditures" as defined by Congress's Joint Committee on Taxation.

This topic requires much more scrutiny, primarily to determine if, given other policies subsidizing child rearing, there is a social need for $1,000 more per child.

One alternative is to remove the subsidy and lower tax rates by an offsetting amount. This tax cut would benefit all taxpayers, not just parents. It would also provide social benefits in terms of increased productivity and economic growth, and this is the most relevant comparison to any social benefits from additional children.