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Tax Simplification: Clarifying Work, Child, and Education Incentives
The federal income tax code is riddled with complex provisions concerning children. Families with children qualify for and receive substantial assistance, but the provisions are difficult for parents to understand and for the IRS to administer. This article proposes making uniform the definition of child under age 19, regardless of student status for the key child benefits: the earned income tax credit, the dependent exemption, head of household filing status, and the child tax credit. Savings from the proposal could be used to subsidize higher education, particularly for low-income families that would lose assistance from the EITC. The proposal would simplify the tax system, clarify incentives, and set the stage for broader reform.
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The code provides substantial benefits to families with children through a wide array of child-focused tax provisions. Those provisions either reduce taxes owed, relative to individuals and families without children, or provide a direct benefit akin to a traditional spending program, albeit administered through the tax system. Those provisions have two primary goals: to adjust tax burdens for a family's ability to pay and to encourage particular behaviors, most notably work. The child tax credit (CTC), the earned income tax credit, the dependent exemption, head of household filing status (granted to single parents), and the child and dependent care tax credit (CDCTC) are the core child provisions. Congress enacted those provisions piecemeal, with the result that families with children now face considerable complexity when completing their tax return.
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