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The final version of the Tax Cuts and Jobs Act (TCJA) generally adopted the Senate provisions that directly affect families with children. As a result, it favors families with younger children over those with older children. For low- and moderate-income families, single parents would be bigger beneficiaries than married couples, and families with fewer children would often see larger tax cuts than those with more children. Many households with incomes over $75,000 ($110,000 if married) will benefit, for the first time, from an expanded Child Tax Credit.
Like the Senate bill, the final version of the TCJA increases the standard deduction, eliminates personal exemptions, and expands the CTC. But it makes three important changes to the CTC from the Senate version:
- The maximum refundable portion of the credit increased from $1,100 to $1,400, which is below the newly increased $2,000 maximum CTC.
- As under current law, 17 year old children would no longer be eligible for the full CTC (they would have been under the Senate bill).
- The credit would begin phasing out at $200,000 for single parents and $400,000 for couples. That’s substantially higher than today’s $75,000 for single parents and $110,000 for married parents, but lower than the Senate bill.
Even with the changes, many low-income families would get a maximum increase in their credit of just $75. That is because the refundable portion of the credit is limited to 15 percent of earnings over $2,500, as in the Senate bill (the earnings threshold was $3,000). Increasing the maximum allowable refundable amount doesn’t raise this earnings limit. The $75 increase reflects the 15 percent rate multiplied by the $500 difference in earnings thresholds. Families with more than one child, who already qualify for higher credits, are most likely to see a smaller increase than advertised, due to the limits on refundability.
Fewer high-income families will qualify for the CTC than would have under the Senate bill. But by increasing the income level at which the credit phases out, the final bill still makes more families eligible, and most will receive the maximum $2,000 per child credit.
The Tax Policy Center estimates that families with children would see their taxes fall, on average, by $2,570 in 2018. However, those in the lowest 80 percent of the income distribution (who make about $90,000 or less) would see smaller average tax cuts. The poorest 20 percent of families with children would get an average cut of just $210. By 2027, after most of the bill’s provisions directed at individuals and families expire, the lowest-income families would see an average tax increase of $160.
While many low- and middle-income families will benefit from the TCJA, Congress missed an opportunity to significantly boost their economic well-being.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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