May 24, 2020

Refundable child tax credit to help working families

The Senate this coming week will debate President Bush’s landmark proposal to significantly reduce America’s tax burden, following Senate Finance Committee approval Tuesday of a $1.35 trillion tax cut.

American taxpayers are struggling under the highest tax burden since World War II. Given more than $5.6 trillion in anticipated federal budget surpluses, our budget protects every dollar of Social Security and Medicare, and buys down $2 trillion of the national debt. We have set aside funds to make significant investments in shared priorities like education, health care and a prescription drug benefit. It is in this context that we considered the tax relief plan as a way to return a portion of the surplus to hard-working American men and women. I sought to ensure that tax relief is balanced and fair, to include tax reductions to benefit working Americans earning low- and mid-level wages.

The bipartisan RELIEF Act, presented by Senate Finance Chairman Chuck Grassley, R-Iowa, and Ranking Member Max Baucus, D-Mont., responds to my concerns with the distributional aspects of the package by bolstering the Earned Income Tax Credit program, retroactively creating a new 10 percent tax bracket, adding a new deduction for higher education tuition costs, providing relief from the Alternative Minimum Tax for middle-income families, and ensuring marriage penalty relief for couples. All of these initiatives will help low- and middle-income taxpayers, and all will benefit the working families of Maine and America.

Of particular significance to many families will be the inclusion of my bipartisan proposal, with Senators Blanche Lambert Lincoln, D-Ark., John Kerry, D-Mass., Jim Jeffords, R-Vt., and John Breaux, D-La., for a child tax credit that is refundable and retroactive to the beginning of this year. How will this help? In its original form, the tax relief plan would not have reached all full-time workers – the tax reduction would have disappeared for wage-earners with net incomes of less than about $22,000. To expand the reach of the tax bill to those families who fall beneath this income level, I worked to ensure that package doubled the $500 per child tax credit and made it partially refundable for those with incomes of more than $10,000.

Including this measure in the bill we send to the Senate floor was a major victory for these families, and a critical step toward achieving balance in the tax bill among all tax brackets. Our plan will provide a substantial tax credit to an additional 37 million families and 55 million children nationwide, including 28,000 families and about 50,000 children in Maine who might otherwise have gained no benefit from the proposal to simply double the per-child credit.

Many of these are families earning minimum wage, struggling to make ends meet in addition to paying their share of state and local taxes, payroll taxes, gasoline taxes, phone taxes, sales taxes, and property taxes. All told, the average full-time worker earning the minimum wage pays more than $1,530 in payroll taxes, and more than $300 in federal excise taxes.

This is no small burden to working families already living on the fiscal edge. In fact, despite America’s strong economy, one in six children lives in poverty, and the number of low-income children living with a working parent continues to climb. My provision to make the child tax credit refundable will give these families a hand up as they strive for self-sufficiency, and give these kids the hope of a childhood without poverty.

The partially refundable credit will provide a benefit of up to 15 cents for every dollar earned above a $10,000 per year threshold. In real terms, this year, a working family with one child and an income of $13,000 would be eligible for a refundable credit of $450; and a family with an income of $14,000 would qualify for the full $600 credit. As tax reductions and the child tax credit are phased in over 10 years, the maximum allowable refundable credit will rise from $500 to $600 this year, increasing to $1,000 by 2011. Families with more than one child would also receive a refundable credit based on their income.

Will this tax relief solve all the financial problems faced by eligible families? No. But it will help to purchase essentials, like groceries, heating fuel or electricity. And it sends an important message of encouragement that we want those who work hard and strive to improve their lives to succeed. Refundability shows that tax relief is for all full-time working families.

Yet again, it was bipartisanship that laid the foundation for public policy that is in the best interests of the American people. The overall package will now be considered by the full Senate, and it goes a long way toward reducing the burden on America’s taxpayers, boosting the strength of our economy by leaving more money in the pockets of those who created our current prosperity, and ensuring that low- and middle-income families will share in the benefits. I believe our children – and the future of our nation – deserve nothing less.

Olympia J. Snowe, Maine’s senior senator, is a member of the Senate Finance Committee and principle author of the Child Tax Credit provision.

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