Everyone with a tax cut proposal claims to want to help children—"leave no child behind" being the registered trademark of the Children's Defense Fund and one of President Bush's favorite campaign pledges. But with at least six different tax plans on the table, how's a citizen to choose?

There are lots of complexities in any tax proposal, but two main measures tell much of the story. First is size—how much it will cost the government in tax revenues that could be spent on other programs or debt reduction. Then there is fairness—who gets the money that would otherwise have been paid in taxes.

Despite close to a decade of robust economic growth, there are still many working families in America who don't have some of the basics they need to get by, including adequate child care, affordable housing, enough food, reliable transportation and health care. As the economy slows, these families are likely to be the most vulnerable to layoffs and government cutbacks in services and programs. They have a big stake in the tax relief proposals currently being debated in Washington, DC.

Helping Families Leave Poverty Behind
According to tax policy analysts, for low-income families the most important element of any tax cut proposal is whether the tax relief is fully refundable. A refundable tax credit means that families that do not owe any federal income tax still receive a refund. For most moderate- and low-income families, payroll taxes rather than income taxes make up the biggest share of their tax burden. Across-the-board cuts in the federal income tax rates do nothing to relieve that burden. For example, according to the National Women's Law Center, a single mother with one child and $17,000 in income owes only $183 in federal income taxes under the current tax code, but owes $2,584 in payroll taxes. A refundable tax credit would give this hypothetical mother the ability to pay a portion of her payroll taxes with the refund, reducing her overall tax bill and thus boosting her available income.

How do the tax proposals under discussion add up, when compared for their cost and for their ability to raise children out of poverty and extreme poverty? Poverty is defined differently for different sizes of families. In 2001, the federal poverty level (FPL) for a family of four is $17,650. Extreme poverty means the family is living at half the poverty level or below. Here's a brief outline of six plans under discussion.

• President Bush has proposed a tax package that includes, among other items, non-refundable across-the-board reductions in tax rates, the repeal of the estate tax, and an increase of the non-refundable child tax credit from $500 to $1000 per child. Conservative estimates put the cost of his total plan at more than $1.6 trillion dollars over the next ten years.

  Because the child tax credit Bush proposes is not refundable, a two-parent family with three children would need an annual income of over $42,000 before it would fully benefit from the measure, according to Isabel Sawhill and Adam Thomas of the Brookings Institution.

  Bush's tax cut proposal would lift no children out of poverty, and no children above extreme poverty.

• On March 29, 2001, the House of Representatives approved H.R. 6 tax legislation that included increasing the child tax credit from $500 to $1000 per child. The House version of the child tax credit differs from the Bush plan because it is refundable to a limited degree. This version would help some lower-income families more than the Bush plan.

  But the House-approved $1000 child credit would lift no children out of poverty, and no children above extreme poverty. However, H.R. 6 also included a separate expansion of the EITC which would lift some 200,000 children out of poverty.

• Representative Connie Morella (R-MD) has proposed increasing the child tax credit to $1000 and making half of it, or $500, fully refundable for all low-income families with children without regard to their minimum earnings.

  Morella's refundable child credit would lift about 1 million children out of poverty, and an additional 800,000 children above extreme poverty.

• The Democrats in Congress have argued for a smaller overall tax package than the one proposed by President Bush, to leave money to pay down the national debt and to invest in social programs. Their $600 billion tax plan would give essentially the same tax relief to all but the top income families, and extend tax relief to the poorest taxpayers. It does not include a child tax credit, but expands the EITC.

  The Democrats' tax plan would lift 300,000 children out of poverty. In addition, less than 50,000 children would be lifted above extreme poverty.

• Isabel Sawhill at the Brookings Institution has suggested extending the upper threshold of the Earned Income Tax Credit and offering a partially refundable $1000 child credit beginning to phase in for families earning at least $8000 a year, the equivalent of working 30 hours a week all year at $5.15 an hour. Sawhill estimates the cost of this plan at $394 billion over ten years. A two-parent family with two children and an income of $24,000, which would not benefit from the Bush or House plan, would gain over $3500 from the Sawhill plan.

  Sawhill's $1000 child tax credit would lift 600,000 children out of poverty, and no children above extreme poverty.

• Child advocates, including the Children's Defense Fund, have proposed a $1000 fully refundable child tax credit for all families below $110,000 in income. They argue a fully refundable child credit would help 16.6 million children who live in families who would not be able to claim a non-refundable credit because they make too little to owe federal taxes. The Children's Defense Fund claims that a fully refundable child tax credit would be the single most effective tax cut to reduce child poverty rates.

A fully refundable $1000 child tax credit would lift 2 million children out of poverty, and an additional 1.7 million children above extreme poverty.

So what kind of tax cut do you want?

References:

• Isabel Sawhill of the Brookings Institution [1]
• Children's Defense Fund [2]
• National Women's Law Center [3]
• Citizens for Tax Justice [4]
• Center on Budget and Policy Priorities [5]
• Tax analyst Frank Sammartino [6] at the Urban Institute

  Tax Cut Plans: How Many Children Will Be Lifted From Poverty?

  Proposal	Children Lifted Above Poverty	Children Lifted Above Extreme Poverty
  Bush Total Tax Package	0*	0*
  House of Representatives  (HR 6)	200,000*	0*
  Congressional Democrats EITC	300,000	<50,000
  Sawhill/Thomas Child Credit	600,000*	0*
  Rep. Morella Child Credit	1 million*	800,000*
  Children's Advocates Child Credit	2 million*	1.7 million*

  *Children's Defense Fund analysis

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  Jan Richter [7] is outreach and policy analyst at Connect for Kids.