Under current law, the Child Tax Credit gives families $1,000 per child to knock off their tax burden to the federal government. The Senate tax bill doubled the credit to $2,000. But to get the full amount, you have to owe a high amount in federal taxes. Families that make less money owe less money to the government and, as a result, can get less money from the credit.
Rubio and Sen. Mike Lee (R-Utah) wanted to restructure the Child Tax Credit to allow more poor Americans to claim more relief. Under Rubio's plan, even if a family owed the government no money, the government would send that family a check if they qualify for the credit. That would allow them to still benefit just like wealthier Americans with big federal tax burdens to reduce. (During the tax debate, Rubio frequently noted that those who don't earn enough to have an income tax burden still pay payroll taxes, which automatically take money from Social Security and Medicare out of our paychecks. Rubio wanted these families, which don't pay income taxes, to also benefit from the tax credit by being compensated for their payroll taxes.)
But in exchange for his vote on the bill, Rubio was only partly successful in revamping the Republican proposal to give some low-income Americans more money from the credit.
Under the Senate bill, a family earning $25,000 per year with two children would have received only $2,300 from the tax credit, according to the Center on Budget and Policy Priorities. Under the compromise reached between Rubio and GOP leadership, that same family will receive $2,900 for their children. That's an additional $600.
But the poorest working families did not benefit at all from that agreement. In the bill the Senate passed, some of the lowest-income workers — those making roughly $15,000 per year — would get a total of $1,875 in tax credits for two children. That's the same amount this family would receive after the negotiated deal that won Rubio's vote. And it's less than half of the $4,000 a wealthy family with two children will get (though the latter family will also lose some other forms of tax relief, like the dependent deduction, which was eliminated under the bill).
Ernie Tedeschi, a former economist at the U.S. Treasury, produced the chart below illustrating the competing policy options for the tax credit. The blue bars represent where the Senate bill stood this week before the changes initiated by Rubio's demands were accepted; the orange bars show the bill after Rubio's changes took effect; and the yellow bars show the Rubio-Lee preferred policy, with both full refundability and immediate access to the credit on the first dollar earned.
Proponents of the change argue that families earning from about $15,000 to $40,000 do appear slated for increases of several hundred dollars, even as they recognize that the bottom decile of the income distribution did not get a bump. “I really care about people who are in deep poverty getting cash, and I'm really disappointed they didn't change that,” said Samuel Hammond, a poverty expert at the Niskanen Center who has worked closely with Rubio in advocating a more robust tax credit for the poor. “But there's still very large resources going to the working poor, even if it's not the ones at the most extreme level of poverty.”
An average annual tax refund increase of $300 could make a big difference to those earning under $40,000 a year, Hammond said. “That's the annual cost for diapers for a lot of households. It's not insignificant for a lot of very poor families,” Hammond said. “People are expecting miracles from a very weak bargaining position. If Rubio hadn't done this, we would have wound up with nothing.”
But other tax experts criticized the decision not to expand the credit for the poor, saying it would render 10 million families at the very bottom of the income distribution eligible for only the “token” tax credit of under $75, said Chuck Marr, director of federal tax policy at the progressive Center on Budget and Policy Priorities.
“The saddest part is that the single mom who works for the minimum wage as a home health aide and has two kids was left out of the final agreement,” Marr said.
Beyond offering virtually no relief for the very poorest workers, the compromise tax credit also faces scrutiny over how it would be financed. Originally, Rubio wanted to pay for the higher tax credit by shrinking the size of the bill's proposed corporate tax cut. But lawmakers instead chose to raise some of the money for the provision by scrapping the draft's increase in the age of the child who qualified for the Child Tax Credit from 16 to 17, and by lowering the income threshold when the tax credits begin to phase out. In other words, lawmakers moved money around within the credit, rather than adding to total spending on working households by reducing the bill's tax cuts for corporations and the rich.
The final bill kept a new provision that requires proof of a valid Social Security number to claim the tax credit, effectively ending it for close to 1 million children, most of them undocumented immigrants brought to America by their parents, according to Center on Budget and Policy Priorities.
The Senate is expected to vote on the final tax plan as soon as Tuesday. It has Rubio's support.