House Votes to Keep Tax Credit for Children

Higher-Income Families Would Be Eligible

The House voted yesterday to permanently extend the $1,000-per-child tax credit and to broaden eligibility for the politically popular credit to families with incomes as much as $300,000. Lawmakers rejected Democratic calls to offset the $228 billion cost of the measure with tax hikes on the rich.

The 271 to 139 vote marked House passage of the fourth tax cut in as many weeks, as House GOP leaders wrapped up their push to ensure that none of the temporary tax cuts passed in 2003 will expire at the end of this year. But the 10-year cost to the Treasury of the four measures has reached $569 billion, making passage of such comprehensive legislation doubtful in the more deficit-conscious Senate.

Instead, Senate leaders may push bills to extend the same tax cuts for five years at most, and possibly just one year, a Senate Republican leadership aide said last night.

The House measure approved yesterday would make permanent the $1,000 child credit that President Bush secured in 2001. That 2001 legislation would have slowly doubled an existing $500 credit through 2010. Last year, Congress raised the credit to $1,000 immediately, but only through 2004. Without congressional action this year, the credit would drop to $700 in 2005, effectively raising taxes on 30 million families.

But the House took an additional step, expanding eligibility significantly. Currently, married couples with incomes up to $110,000 receive the full credit, and couples with incomes up to $149,000 receive at least a partial credit. The House bill raises the threshold for full eligibility to $250,000. A married couple with three children would receive at least a partial credit until the household income reached $309,000.

The bill also would enlarge the credit this year for some low-income families.

Republicans said that widening eligibility would bring tax relief to families that do not consider themselves rich.

"We're sending the right message that we want to help out all taxpayers with the burden of raising their families," said Rep. Henry E. Brown Jr. (R-S.C.).

Democrats ridiculed the change as a giveaway to affluent families, at the expense of the next generation, which will have to cope with a publicly held federal debt approaching $4.2 trillion. With salaries of $158,100, members of Congress with one or two children currently do not qualify for the credit, Rep. Jim McGovern (D-Mass.) noted. With the House bill's expanded eligibility level, lawmakers with children were essentially voting themselves a tax cut, he said.

"This is not a tax break mainly for middle-income families," said Rep. Sander M. Levin (D-Mich.). "It's a tax break for members of Congress who have kids. Do we need that tax break? I don't think so."

Democrats proposed extending the current $1,000 child credit through 2010 and expanding a tax rebate available to poor parents and families with soldiers in combat. The cost would be offset by an income tax hike on married couples with incomes over $1 million and singles earning more than $500,000. Under the Democratic plan, the tax cut could have been extended beyond 2010 only if Congress enacted legislation to balance the budget by 2014.

The Democrats' proposal was defeated, 226 to 187. The House has now voted to permanently extend the three pieces of the Bush tax cuts that most target the middle class: the expanded child credit, the new 10 percent income tax bracket and relief from the "marriage penalty." House members also approved a one-year patch to slow the expanding alternative minimum tax through 2005.

The fate of the legislation may be entwined with the ongoing battle over a budget blueprint for the fiscal year that begins in October. The compromise budget that squeezed through the House on Wednesday would allow those four tax provisions to be extended just one year, under special rules that could be passed with a simple majority vote in the 100-seat Senate. Permanent extension would require 60 votes.

But four Senate Republicans continue to hold out for a stringent budget measure mandating that the cost of any tax measure be offset by spending cuts or tax increases. Senate leaders gave up efforts to win over more votes, and decided to work for a deal when the Senate returns from its Memorial Day recess next month.

If no budget accord is reached, there will be no budget rules to limit the Senate's ability to adopt the House's permanent tax-cut extensions, budget experts said. But, they added, the Republicans pushing now for tougher budget rules are not likely to accept the House's expansive tax measures, making compromise all but certain.