We like the tax bill crafted by House Ways and Means Committee Chairman Jason Smith of Missouri. It extends the expiring business tax cuts that were in the original Trump tax cut of 2017. These include allowing businesses to immediately write off the cost of all capital purchases and an immediate expensing provision for R&D expenditures, which are critical to developing new life-saving drugs. Passing this would make it easier for Trump next year to make his 2017 tax cuts permanent.
But we are concerned about the expansion of the child tax credit which provides cash payments to parents of up to $2,100 for each child in the home. Those payments can exceed taxes paid – and are really a backdoor form of welfare.
There are some work requirements, but there are also loopholes that encourage parents to stay out of the workforce or to reduce hours worked. According to AEI welfare policy scholar Matt Weidinger:
“The tax bill allows parents to use earnings in either of the last two years to claim the child tax credit in tax years 2024 and 2025. This policy would cut the current annual work requirement in half by allowing parents to claim the CTC for two years while working in just one…
As a result, a parent with two children could have collected over $20,000 in EITC and CTC benefits for 2020 and 2021 [on top of tens of thousands of dollars of other benefits] despite not working those years.”
Oops, Washington, we have a problem.
What the left is pursuing here is a “guaranteed national income” for all Americans whether they work or not. According to a recent Wall Street Journal analysis, this strategy doesn’t work:
The guaranteed-income experiment has been tried many times before. It has always led to less work among low-income Americans, weaker families, and more poverty.
The U.S. tested guaranteed income in four large-scale random assignment pilots in the 1970s. Overall, $1,000 in added benefits was offset by a $660 earnings reduction. The reduced earnings persisted long after the programs ended. Each $1 increase in benefits led to a roughly $5 drop in recipients’ lifetime earnings.
At a time when we need MORE work-aged Americans working, this higher child credit is counterproductive to ensuring healthy families and self-sufficiency through work.