Why Make Bad Policy When You Can Make Good Policy?

Josh McCabe has a piece at the Niskanen Center defending the idea of using a child tax credit to deliver benefits to children. His post makes a number of mistakes and omissions that policymakers should be aware of.

Phase-out Problems

The bill that Joe Biden’s CTC proposal is based on, the American Family Act, applies two phase-outs based on an individual’s estimated income for the year.

The first phase-out is a phase-out for the total credit amount, which kicks in at $130,000 for a single filer and $180,000 for a married filer.

The second phase-out is a phase-out for the advanced monthly refund, which kicks in at a variety of locations depending on income and tax filing status. For a single mother with one kid, it kicks in at $34,665 of earnings, as we see in the graph below.

There are two main problems with this design:

To apply a phase-out based on expected income, people have to report their expected income, which they do not currently do. This amounts to requiring people to file two tax returns a year, a real one and a speculative one. This administrative burden will result in many eligible people not receiving the benefit they are eligible for.

4 Answers

  • 1 month ago

    You have succeeded in demonstrating you have NO CLUE what you are yammering about, or what a question is.

  • 1 month ago

    Not sure what you're worked up about, but here's a history lesson for you - everything Biden is proposing has been done before without any major problems.

    Low income families used to be able to get an advance on their earned income credit each payday, which was calculated as a negative tax withholding and actually resulted in money being Added to their paycheck rather than subtracted.

     Employers withhold taxes from lots of employees and send a single payment to the IRS with a statement that breaks down how much came from which employee. The ones who get an advance payment of their EIC are simply reported with a negative withholding value and it all gets sorted out on that person's tax return at the end of the year. The result is that a struggling low income parent has a bigger paycheck each payday instead of less pay and a big tax refund once per year. They end up with the same total take-home pay for the year but get some of their money sooner.

    This practice was eliminated about 15 years ago, but the basic legal framework of how to do this is nothing new. So its not far-fetched to resurrect this practice for the EIC or to apply it to the child tax credit.

    Also, the 2nd phase-out does not create any need to file extra tax returns. The payroll department simply multiplies a person's gross pay for that pay period by the number of paychecks they'll receive each year to determine if they're eligible for the credit that pay period.

    The phase-out for the advanced credit is so far below the phase out for actually receiving the credit on a tax return that its nearly impossible for someone to relieve the advanced credit early in the year then end up with an income so high that they don't qualify and they have to repay the money.

    Also, when this was done in the past, people had to apply for the credit through their employer by filling out some extra details on the W4 form which asked them about other sources of income or income their spouse earns if they're married. People who answer those questions honestly wouldn't accidentally get the advanced credit if they don't qualify.

    Whether or not any of this is "good policy" is a matter of opinion. You're entitled to your opinion and I won't try to change it.

  • Anonymous
    1 month ago

    Thanks for posting. For 30 years I always made bad policy. I will now make good policy. Not sure how I made it without you.

  • 1 month ago

    What is your question?

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