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Finance Blogs » Taxes Blog » Child tax credit ‘improved’ yet again

Child tax credit ‘improved’ yet again

By Kay Bell ·
Tuesday, July 29, 2014
Posted: 1 pm ET

The argument could be made that H.R. 4935 should be more accurately titled the Child Tax Credit Re-Improvement Bill of 2014.

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After all, the $1,000 tax break for simply having a dependent youngster age 16 or younger already was enhanced in 2004 when, as part of one of President George W. Bush's tax bills, its $500 value was doubled.

The child tax credit has been renewed periodically at the $1,000 level, most recently thanks to the so-called "fiscal cliff" tax bill, officially known as the American Taxpayer Relief Act. Under that measure, the credit is in effect through 2017.

But on July 25, the House passed the officially named Child Tax Credit Improvement Act of 2014.

This latest tax-credit tweak indexes the $1,000 benefit for inflation, meaning it could be bumped up incrementally year to year.

"The lack of indexing of a particular provision to inflation means that a provision is worth a little bit less to taxpayers every year," says Rep. Lynn Jenkins, R-Kan., the bill's sponsor. "This legislation essentially removes the annual hidden tax placed on these families and recognizes that a dollar of income in 1998, and in 2004, is not the same as a dollar of income in 2014."

Eliminates marriage tax penalty

The bill also increases the income eligibility amount for jointly filing married parents, making it double the limit for single filers.

Currently, the credit is phased out for individuals with gross incomes of more than $75,000 for single taxpayers, $110,000 for married filing jointly taxpayers and $55,000 for married taxpayers who file separate returns.

Under Jenkins' bill, the child tax credit wouldn't start phasing out for married joint filers until their gross income hit $150,000.

Without the increase, according to Jenkins, the income limit essentially acts as a marriage tax penalty.

Added credit not included

Not everyone, however, is convinced that the bill is an improvement.

Rep. Sander Levin, D-Mich., the ranking Democrat on the Ways and Means Committee, denounces the bill as a giveaway to upper middle-income families whose incomes are too high to qualify under current law.

That new tax benefit, says Levin, comes at the expense of lower-income families.

H.R. 4935 "completely ignores" the refundable portion of the child tax credit, says Levin. This provision enables qualifying taxpayers to receive a portion of the credit as a refund if it exceeds the amount of taxes they owe.

Citing Center on Budget and Policy Priorities data, Levin says that without the refundable credit component, 12 million people, including six million children, will be pushed into poverty or deeper into poverty.

"Republicans may say that such an extension could be done later," says Levin, "but that talk about future action is made incredulous when Republicans this week add another $187 billion to the deficit, bringing the total they have passed in unpaid-for tax cuts to more than $700 billion."

For now, Levin doesn't have to worry about the so-called improved child tax credit. Although it made it through the House, there's little chance it will be approved by the current Democratically controlled Senate.

But if -- or when, if you're a GOP optimist -- the balance of power on Capitol Hill and the White House shifts, look for this and similar tax bills to proliferate.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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July 30, 2014 at 11:39 am

Some how the democrats keep blaming the Republicans for all the problems but in actuality it is Democrats who are always the problem it wold be good news if people who vote could receive all the news.