While the Bush tax cuts are often presented as “tax cuts for the rich,” many middle-class families benefit from the increased child tax credit that was part of the tax cuts. Wisconsin middle class families benefited more than their counterparts in other states from the increase in child tax credit.
The increase in the child tax credit is due to expire in 2011 along with the rest of the Bush tax cuts. If the Democrats in Congress and the Obama Administration follow through on their threat to let the Bush tax cuts expire, middle-class taxpayers in Wisconsin and elsewhere could receive a huge tax jolt.
Because of the Bush tax cuts, joint married filers earning less than $110,000 receive a per-child tax credit of $1000. The tax credit phases out after income reaches $110,000. The tax credit is also $1000 per child for single filers earning less than $75,000 and phases out above that point. Married filers filing separately, the phase-out begins at $55,000.
To qualify for the tax credit, the child must be under 17 and living in the household for at least half the year (with a few exceptions). The child must have some relation to the filer: son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes grandchild, niece or nephew. The child must be claimed as a dependent, and cannot have provided at least half of his/her own support. Finally, the child must be a citizen or resident alien.
I think my snow blower qualifies for the credit.
Prior to the Bush tax cuts, the per-child tax credit was only $500. Despite the rhetoric of how the Bush tax cuts only benefited the wealthy, the doubling of the child tax credit had a tremendous impact on the middle class.
Because it is a tax credit and not just a deduction, the credit goes directly to the tax filer’s bottom line. For example, if a family of five files their federal taxes and owes $5,000 before the child tax credit, the child tax credit would reduce their tax burden to $2000, a 60% reduction in their taxes owed. If the Bush tax cuts are allowed to expire, the family would only be allowed to reduce their tax burden by $1,500 ($500 per child), effectively a 75% increase in federal taxes for that family.
Normally I’m a believer that children should be seen and not heard. The best time for them to be seen is when I’m filling out my taxes. I’m willing to adopt the entire Vienna Boys Choir then.
Wisconsinites benefit from this tax cut more than residents in other states. Of the tax filers claiming the credit, Wisconsin filers ranked eighth in benefiting from the credit. Wisconsin filers’ average credit ranked fourteenth of all filers. Of the Wisconsinites claiming the credit, the average tax benefit was $1,335 off what they owed.
That’s a lot of cheese curds.
Just as Wisconsinites disproportionately benefited from the Bush increase in the child tax credit, so, too, would Wisconsinites be negatively impacted disproportionately if the increased tax credit was allowed to expire.
Democrats unhappy with the Bush tax cuts neglect to mention that only 25% of the benefits went to those making $250,000 per year or more. When they talk about taxing the rich to pay for the deficit, they mean the middle class. Prior to the enactment of the Bush tax cuts, 33 million Americans were non-taxpayers of the federal income tax. After the Bush tax cuts, total non-taxpayers of the federal income tax jumped to a staggering 52 million. How many middle-class families will feel like “the rich” when the Bush tax cuts expire?
When listening to the tax-the-rich rhetoric coming this summer to pay for the huge Obama deficits, skeptical Wisconsinites may want to keep in mind just how much they benefited from the Bush tax cuts.
By James Wigderson
Special Guest Perspective for the MacIver Institute
[...] at the MacIver Institute this week, a look at the child tax credit and its impact, especially in Wisconsin. Because of the Bush tax cuts, joint married filers earning less than [...]
I have been waiting to see if James would update this with a correction, but he hasn’t. Democrats and the Obama administration have not signaled that they would allow the child tax credit to expire. In fact, Obama’s budget proposal nearly doubled the value of the credit, and Democratic leaders in Congress have announced plans to make the credit permanent before the summer recess.
In addition, a 2008 report by the Senate’s Joint Economic Committee noted that a third of the total benefits of the Bush tax cuts went to households earning more than $350,000, with that number increasing every year–another fact that’s just wrong in this piece.
James Wigderson Reply:
May 26th, 2010 at 6:21 PM
Well, let me make a couple of corrections for Jay “folkbum” Bullock. I wish Jay would follow my advice and actually check with me before he embarrasses himself.
1) It’s hard to Bullock’s criticisms seriously when he doesn’t even understand which tax credit I’m writing about. I wrote about the Child Tax Credit. If Bullock had actually read my piece carefully, he would have learned just what is the Child Tax Credit. It is the credit given to families for each child. Bullock is referring to the Child Care Tax Credit. President Obama has indeed promised to double the Child Care Tax Credit. The Child Care Tax Credit is the credit given to families to offset the outside-the-home care expense of a child. That has nothing to do with what I wrote.
2) The number I used is from a Heritage Foundation article based upon numbers from the Congressional Budget Office. You know my motto: if the non-partisan CBO is good enough for Obamacare, it’s good enough for me. The number Bullock uses comes from a two-year old partisan report by the Joint Economic Committee written by the majority Democrats. The report was a direct attack in an election year on the Bush tax cut.
As for whether the tax credit increase will be made permanent, who can say? Obama promised to close the terrorist holding facility at Guantanamo Bay. Heck, I’m still waiting for the Health Care Debate on C-Span. Until the increase is made permanent, anything’s is possible. One report I saw in doing research for the article indicated that the tax credit increase may be extended for one year only until there is a complete overhaul of the tax code in the name of deficit reduction.
Regardless, the basic points remain. The Bush tax cuts were good for the middle class. Theyre due to expire. Among the tax cuts due to expire is the increase in the child tax credit. If the tax credit increase expires, the middle class will pay a lot. Wisconsinites benefit disproportionately from the tax credit. They will get hit worse than residents of other states.
I realize that Bullock believes that being liberal means never saying you’re sorry. But maybe just this once he could make the corrections on his blog. Hopefully, he’s learned a lesson about asking first.
folkbum Reply:
May 26th, 2010 at 7:39 PM
Actually, James, you’re right that the doubling part is an error. I will be correcting that. However, the rest remains: The administration has included making permanent the tax cut you describe here in its budget, and Democrats have signaled their intention to do so. Its death at the hands of demon Democrats is greatly exaggerated. You get a nice column out of the idea, but it’s flat wrong.
Specifically, you write, “If the Democrats in Congress and the Obama Administration follow through on their threat to let the Bush tax cuts expire, middle-class taxpayers in Wisconsin and elsewhere could receive a huge tax jolt.” That’s simply false; Congress and the administration have made no threat to let tax cuts expire on the middle class, including the one you specifically name.
Second, as to the share of tax cuts going to the wealthy, I cannot find the CBO report you cite. Well, lemme clarify: I cannot find the CBO report that some Heritage nut cited in his Washington Times op-ed earlier this spring. The Moonie, er, Washington Times is hardly an unbiased source. Additionally, those numbers don’t jibe with anyone else’s. CPBB, for example, used a CBO figure close to 25% for the top 5% (about $250k and up) five years ago, but noted that not all the cuts for the wealthy were in effect yet (cap gains, estate taxes) and that number would grow. CTJ put out a report a month ago noting that in full effect, the top 5% would see 40% percent of the benefit of the cuts in 2011. I could go on.