Issue

Once again, Congress faces many difficult choices in fashioning a federal budget for fiscal year 2007. One proposal in the Senate (S 1775), offered by Senators Snowe (R-ME) and Lincoln (D-AR), could specifically help low income families by making a much needed change in the refundable portion of the child tax credit. Presently, those who receive the “refundable child credit” face a creeping minimum income base that leaves behind too many poor and working families.

Here is how it works: the base earnings figure is indexed to inflation and rises each year (originally set at $10,000 in 2001 but is now up to $11,000 in 2005). This means that working families earning $11,000 or less a year are ineligible for the child tax credit. A family with a full-time year-round minimum wage worker—40 hours a week for 52 weeks earns $10,700—is, and remains, ineligible for the credit. Above $11,000, families can receive $150 for every $1,000 they earn, up to a maximum of $1,000 per child. That means a family with two children gets the full benefit when its earnings reach about $24,300.

As currently formulated, the child tax credit excludes millions of children in low-income working families. Because of differences in income, family composition, and employment status, nearly half of Blacks and 46 percent of Hispanics receive no or reduced benefits from the CTC because their incomes are too low. By comparison, only 18 percent of White children are in that category. Indeed, White children are more likely to see their credits shrink because household income is too high.

Senators Snowe and Lincoln’s proposal is called the Working Family Child Assistance Act of 2005. The legislation would return the threshold for the refundable tax credit to $10,000 and repeal indexing for inflation. As a result, more and more lower-income children would become eligible for partial or full credits over time. Racial disparities would persist with this lower floor on earnings, but they would likely become smaller over time as increases in nominal earnings push more and more low-income families above the threshold for the refundable credit.

USCCB Position

Bishop DiMarzio wrote to the Senate Finance Committee in October of 2005 and said: “Unless Congress acts, children in poor working families will receive little or no benefit from current law. Our faith calls us to stand up for these families and children and insist their needs should take priority. We believe it is a matter of simple justice.”

The Catholic bishops have been consistent supporters of changes in the tax code to assist families, especially low income families. The Child Tax Credit has been a high priority for the bishops. In their 1991 pastoral statement, Putting Children and Families First, the bishops asserted: "We welcome proposals to reform the tax code to help families cope with the high cost of raising children. These proposals, which have drawn bipartisan support, would allow middle income families with children to keep more of what they earn and would help lift low income families out of poverty.... This pro-work, pro-family provision needs to be enhanced and supported as an important contribution to tax fairness."

What You Can Do

Tell your Senators and Representatives:

• the first priority for tax relief should be families, especially those with the greatest needs.
• a fundamental moral measure of this budget is whether it enhances or undermines the lives and dignity of the most vulnerable members of our society.
• about stories and experiences of families who utilize the child tax credit.

Email us at sdwpmail@usccb.org
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