Toppling Over the Fiscal Cliff Could Cost Low-Income Families $1,000 in Reduced Tax Credits

By :: December 19th, 2012

The 2001-10 tax cuts placed substantial emphasis on “pro-family” tax reform. The more prominent features favoring families with children included a doubling of the Child Tax Credit (CTC) to $1,000 per child and making it broadly refundable, increasing the Earned Income Tax Credit (EITC) for families with at least 3 children, increasing the point at which the EITC starts to phase out for married couples, increasing the credit rate of the Child and Dependent Care Tax Credit (CDCTC) for some families, and increasing the expenses eligible for a CDCTC for all families.

If left in place, in 2013 families with children would see over $43 billion in benefits from these provisions. But  absent Congressional action, these expanded benefits will disappear over the cliff. Should the EITC, CTC, and CDCTC revert to their pre-2001 form, the Tax Policy Center estimates nearly three-quarters of all families with children will see their taxes rise or net rebates decline by an average of almost $1,200, compared with what they would pay if the provisions were extended. Keep in mind  those changes would be in addition to  the broad tax hikes that would  affect nearly all working families such as  the expiration of the payroll tax cut  and any increase in marginal tax rates for all families with income above the tax entry thresholds.

Most low income and middle income families with children will see their taxes rise (almost 72 percent of families in the lowest 20 percent of incomes  and 89 percent of families in the second income quintile), in many cases by a substantial share of their income. Among families whose taxes go up, the average increase will exceed $1,400 for families in the lowest quintile and $1,600 for families in the second quintile (see chart). Most of this increase comes from the reduction in the CTC to pre-2001 levels. Although the child credit phases out and the EIC is unavailable at higher incomes, even families in the top quintile are not immune to tax increases stemming from these three provisions. Just over one-third of families with children in the highest income quintile will see their taxes rise in 2013 by an average of about $600.

If Congress and  President Obama can reach a deal (either before or after January 1), it’s likely to include an extension of the doubled CTC, higher income cut-offs for married couples claiming the EITC, and the increases to the CDCTC.  This would preserve these benefits for most families.  But  the fate of other provisions, such as the reduced refundability thresholds for the CTC and the increased EITC for families with at least 3 children, are much less clear. For instance, neither is included in the  House Republican Budget Plan. Those provisions deliver the lion’s share of benefits to those in the lowest income households.

Today, we still don’t know how the ongoing budget debate will end.  But the debate thus far leaves the most vulnerable families quite close to the edge.

18Comments

  1. December 19, 2012 War on Workers News  ::  3:40 pm on December 19th, 2012:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]

  2. Michael Bindner  ::  3:46 pm on December 19th, 2012:

    They should have taken care of these, as well as making the 10% rate permanent, when they passed the Budget Control Act of 2011. The savings in that Act should be enough to offset these changes, plus a few more.

  3. AMTbuff  ::  5:48 pm on December 19th, 2012:

    This change would not affect anyone until March 2014 (tax refund season for 2013). What’s the chance that this will not be taken care of by then? Approximately zero, I think.

    AMT relief is on a much tighter schedule, affecting people early in 2013 for the 2012 filing season. Without relief the tax increase per family is about $8000.

  4. Tax Roundup, 12/20/2012: Blizzard! And meeting interesting people via social media. « Roth & Company, P.C  ::  9:00 am on December 20th, 2012:

    […] Maag, Toppling Over the Fiscal Cliff Could Cost low-Income Families $1,000 in Reduced Tax Credits […]

  5. The Facts About ‘Plan B,’ The House Republican Bill To Hike Middle-Class Taxes « Humboldt County Democrats  ::  1:29 pm on December 20th, 2012:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]

  6. The Facts About ‘Plan B,’ The House Republican Bill To Hike Middle-Class Taxes « Nevada Rural Democratic Caucus  ::  1:31 pm on December 20th, 2012:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]

  7. TaxVox » Blog Archive » Toppling Over the Fiscal Cliff Could Cost … « Double Taxes  ::  2:27 pm on December 20th, 2012:

    […] original here: TaxVox » Blog Archive » Toppling Over the Fiscal Cliff Could Cost … Comments […]

  8. A Primer on Boehner’s “Plan B” and GOP spending cuts « The Political Equation  ::  3:53 pm on December 20th, 2012:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]

  9. The Facts About ‘Plan B,’ The House Republican Bill To Hike Middle-Class Taxes | Politics Dividing US  ::  2:00 am on December 21st, 2012:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]

  10. Weekly Round-Up: December 21, 2012 | Tax Credits for Working Families  ::  2:24 pm on December 21st, 2012:

    […] increases that would impact nearly all working families. (CBS News, The Washington Post, NPR 1,2, The Tax Policy Center, Wisconsin Budget […]

  11. Weird Turn On Fiscal Cliff: GOP Plan Would Hike Taxes On Working Class So High-Income People Can Pay Less « Weird « strange weird funny odd unusual peculiar  ::  4:34 am on December 22nd, 2012:

    […] taxes for low- and moderate-income households. Among them: He’d allow more generous rules for refundable credits to expire and let a college education tax credit fade […]

  12. Old Click » Fiscal cliff debate: It’s not just the politics that are weird  ::  10:02 am on December 24th, 2012:

    […] and moderate-income households. Among them: He’d concede some-more inexhaustible manners for refundable credits to finish and let a college preparation taxation credit fade […]

  13. Fiscal cliff debate: It's not just the politics that are weird « Weird « strange weird funny odd unusual peculiar  ::  6:33 am on December 26th, 2012:

    […] taxes for low- and moderate-income households. Among them: He’d allow more generous rules for refundable credits to expire and let a college education tax credit fade […]

  14. The top economics stories of 2012  ::  3:02 pm on December 28th, 2012:

    […] of calamity if the economy topples over the fiscal cliff are abundant.  Low-income families might lose $1,000 in tax breaks, and millions of not-very-high-income individuals might have to pay a tax that was […]

  15. anthony  ::  6:13 am on December 30th, 2012:

    Maybe they’ll forge a compromise in the last minute of this year. But there’s still time to prevent a real catastrophe whose consequences would be felt in every economic sector not only in the US but in many other countries as well. I work in real estate in Canada and according to the analyses that I’ve recently read, the outlook for 2013 is more than optimistic as a result of stable economic conditions. But nothing is certain and much depends on the economic situation of our neighbor – the threats such as inflation in the US could put a halt to the positive development of real estate market in both Canada and the US which would consequently be felt all around the world.

  16. Dick Zitzmann  ::  7:39 pm on January 11th, 2013:

    alexdombroff@alexanderdombroff.com

  17. MILENA  ::  8:10 am on May 16th, 2013:

    excellent points altogether, you just won a new reader.

  18. The Facts About ‘Plan B,’ The House Republican Bill To Hike Middle-Class Taxes » Angry Monks  ::  12:43 pm on July 25th, 2013:

    […] In fact, by allowing several key tax credits to expire –including the expanded Child Tax Credit and a credit that helps with higher education tuition — Plan B would raise taxes on 20 million families. Also, allowing the current payroll tax cut to expire will affect every working American. As the Tax Policy Center noted, “Most low income and middle income families with children will see their taxes rise.” […]