Tuesday, October 04, 2005

Who Actually Gets the Child Tax Credit?

The Tax Policy Center released a study indicating that 30% of children eligible for the child tax credit have incomes too low to take advantage of this credit. Generally, benefits go to parents earning between $20,000 and $200,000 with the $75-100K strata being particularly helped. The Center thus calls the child tax credit a middle-class tax break which may leave Black and Hispanic families behind.

Having done a similar study on the old political contributions credit for my dissertation, I am not surprised that middle-class and better-off taxpayers are major beneficiaries of this credit. I do not necessarily see this as a bad thing for several reasons: (1) some middle-class tax breaks make the tax system more acceptable to middle-class taxpayers/voters; (2) the whole goal of exemptions, refundable credits such as the EIC and the standard deduction is to keep low-income earners from paying taxes, thus with no need for nonrefundable credits. Unless Congress wants to make the child tax credit refundable; the primary goal of the child tax credit should be to help working-class and middle-income families; (3) with the increased susceptability of middle-income taxpayers to the AMT (at least for now), the tax system might be TOO egalitarian at the moment, particularly for middle-income taxpayers.

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