Congress faces many difficult choices in fashioning a federal budget for fiscal year 2004. Our nation is confronting terror, seeking greater security for our people, and facing higher unemployment and rising deficits. Two proposals to change current tax laws could specifically help low income families. Accelerating the size of the Child Tax Credit and maintaining its refundability; and expanding the Earned Income Tax Credit (EITC) as it affects married couples would continue to move many families out of poverty and to make work pay.
Make the Child Tax Credit Increase Available to Lower Income Families
In 2001 the Bishops' Conference successfully worked to make the child tax credit refundable. The credit now enables most taxpayers with children younger than 17 to reduce their taxes by up to $600 per qualifying child. President Bush has proposed to speed-up scheduled increase in the child tax credit raising it from $600 to $1,000 this year (instead of gradually increasing between now and 2010). However, this proposal does not help families with the greatest need--those who receive the "refundable child credit."1 It also does not include changes to the Earned Income Tax Credit which could help two-parent families with low wages.
We can help low and moderate income families three ways:
- Increase the cap on the child credit for families with low wages to 15 percent immediately, at a cost of about $2 billion in 2003. This would lift over 250,000 children in working poor families out of poverty and aid nearly 9 million children in over 3 million families who otherwise would fail to benefit from the Administration's child credit plan.
- Adjust the current indexing formula which unfairly causes some very low income families to lose some or all of the credit.2
- Make adjustments to the Earned Income Tax Credit to end penalties against married couples.
The Catholic bishops have been consistent supporters of changes in the tax code to assist low income families. Both the Child Tax Credit and the Earned Income Tax Credit have been high priorities 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.... We continue to support an expanded earned income tax credit to assist poor, working families. This pro-work, pro-family provision needs to be enhanced and supported as an important contribution to tax fairness."
What You Can Do
The first priority for tax relief should be families with the greatest needs. Senators and Representatives, whatever their party or ideology, need to hear that 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. Stories and experiences with families who utilize either the child tax credit or the EITC should be shared with Members of Congress.
The details of the refundable child credit may be complex, but our message is simple: Poor children and families of modest means have compelling needs and deserve priority as Congress allocates resources; they must not be left out or left behind.
United States Conference of Catholic Bishops, Economic Justice for All. Washington, D.C., 1984
United States Conference of Catholic Bishops, Putting Children and Families First. Washington, D.C., 1991
Thomas Shellabarger at the United States Conference of Catholic Bishops 202.541.3189 or firstname.lastname@example.org
1 The 2001 law that allows families with low wages to receive the child credit as a refund -the "refundable" child credit -works like this: For 2003, the child tax credit for these families is capped at 10 percent of their earnings over $10,500. For example, under current law a family earning $15,000 in 2003 would receive a credit of $450: that is, 10 percent of the difference between $15,000 and $10,500.
2 Under existing law, the cap rises to 15 percent in 2005, and the base earning figure ($10,500 in 2003) rises each year with inflation. By increasing the child credit, but not the cap, the proposal leaves behind millions of poor and working families.