Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) have put out a tax plan which promotes economic growth and "family fairness." The plan's centerpiece is a massive increase to the child tax credit that doesn't phase-out at higher-income levels. On top of the current $1,000 per child tax credit, it would add another $2,500 per child. The tax credit will reduce federal revenues by a projected $173 million a year for the next 10 years—even assuming for big economic growth engendered by some of the plan's pro-growth planks.
Like the Republican plan that created Medicare Part D, the prescription drug plan for seniors, back in 2003, I think the child tax credit is a pretty obvious and cynical attempt to buy votes from a targeted constituency needed for victory. From my latest Daily Beast column:
[The pro-market Tax Foundation ran an] analysis of the Rubio-Lee plan, [with] both static and dynamic scores of the plan. On its static score for the next 10 years, the Tax Foundation found the Rubio-Lee plan meant serious reductions in annual federal revenue. For instance, switching to just two tax brackets of 15 percent and 35 percent would mean $31 billion less each year compared to current law. The full expensing of business equipment would lead to another annual loss of $78 billion, while the changes to the business taxes would cut $210 billion. And the expanded child tax credit would mean the feds would forgo another $173 billion.
Yet in its dynamic score of the same provisions, something different happens. The consolidation of tax brackets yields an average annual net gain of $5 billion, full expensing yields of $115 billion, and the changes in business taxes pulls in a net of $210 billion a year. But the expanded child tax credit? It still shows an average annual loss of $173 billion.
So the expanded child tax credit has nothing to do with promoting growth.
But the child tax credit does have the benefit of targeting middle- and upper-middle class voters with kids under the guise of "family fairness."
In their explanation of the plan, Rubio and Lee claim that the expanded child tax credit is simply a way of abolishing what they call "the Parent Tax Penalty." I'm sure I'm not the only one who has trouble following the logic here: "As parents simultaneously pay payroll taxes while also paying to raise the next generation that will pay payroll taxes, parents pay more into the old-age entitlement systems." Huh? Parents pay to raise their children, yes. When those kids enter the workforce, they (not their parents) will pay taxes on their wages. Forget those "It's a child, not a choice" bumper stickers. Kids today apparently are to be most valued for their ability to pay into unsustainable old-age retirement plans that need to be scrapped, not propped up….
Questions abound: If the amount of income subject to Social Security taxes is capped, doesn't it also make sense then to phase out the credit above certain income levels? What about all the tax dollars that flow to children (and their parents) during their first 18 to 21 years? And if the expanded child tax credit is supposed to credit parents for future tax payments made by their children (yes, getting complicated), then why are low-income parents' credits "limited to the sum of total income and payroll tax liabilities"? Aren't we crediting parents for their kids' future tax payments?
I'd argue instead that the "family fairness" portion actually has very little to do with the future past the 2016 election. Expanding the child tax credit, especially in a way that keeps the full amount for middle- and upper-class parents while limiting the amount low-income parents can get, is a pretty obvious (and obnoxious) way to buy votes among likely Republican voters. Especially when we all know that the GOP has no intention of trimming $173 billion out of federal spending to pay for it.
Last year, Reason TV interviewed Mike Lee "on Killing the Export-Import Bank, Primarying Republicans, And His Mormonism." Watch below: