Senate Democrats have rallied around the Working Families Tax Relief Act (WFTRA) that would significantly expand the Earned Income Tax Credit (EITC) and more modestly boost the Child Tax Credit (CTC). While the measure is not the most ambitious tax idea Democrats have put forward this year, it relies on several existing plans that may fall well within the comfort zone of voters (many of which were analyzed in this recent piece from Brookings’ scholars Belle Sawhill and Chris Pulliam).
Spearheaded by senators Sherrod Brown (D-OH), Michael Bennet (D-CO), Dick Durbin (D-IL), and Ron Wyden (D-OR), the bill has won the support of 46 of the Senate’s 47 Democrats.
The measure acknowledges that low- and middle-income families often lack the resources they need for basic living expenses. About 40 percent of adults report they’ve had trouble meeting at least one basic need for healthcare, rent, food, or utilities within the past year. Other research finds that almost half of Americans cannot cover a $400 emergency expense.
WFTRA would help stabilize families’ finances by expanding both the EITC and the CTC – the tax credits that, combined, already lift more families out of poverty than any other program outside of Social Security. That achievement is due, in large part, to the refundable nature of the credits: low-income people can receive the credits even if they do not owe any income taxes.
Roughly speaking, WFTRA would increase the EITC for families with children by about 25 percent and quadruple the credit for workers without children living at home (often referred to as the credit for “childless workers,” although some recipients are parents of nonresident children or parents of children too old to qualify them for the credit). The bill also would broaden the income range over which childless workers could receive a credit so they’d be treated much like workers with one child. Age limits would be expanded from 25 – 64 to 19 – 67. All these ideas have been included in previous versions of legislation to expand the EITC.
With respect to the CTC, the bill would allow families to receive the full $2,000 credit for each child unless their income exceeded $200,000 (married couples) or $150,000 (single parents) - at which point the credit begins to phase out. Families with children under age six would also get an additional $1,000 young child tax credit. The CTC would be made fully refundable, meaning that the entire credit would be paid to tax filers, regardless of whether they had earnings.
Other recent Democratic bills have been far more ambitious. Senator Brown and Rep. Ro Khanna (D-CA) proposed a more expansive version of EITC reform earlier this year. And Senator Kamala Harris’s (D-CA) LIFT Act would be more generous than either. WFTRA’s changes to the child tax credit fall short of what Senators Bennet and Brown proposed in their American Family Act – which would provide a $3,000 credit for children ages 6 – 16 and a $3,600 credit for children under 6.
Still, this approach helps Democrats say they have heard the voices of low- and middle-income families. The 2017 Tax Cuts and Jobs Act (TCJA) did relatively little for low-income households and effectively ignored the EITC. Now, with another election on the horizon, Democrats seem to be leaning on refundable credits as a favored tool to cut taxes for working families.
