The voices of Urban Institute's researchers and staff
November 29, 2017

House and Senate tax bills do little for most families with young children

November 29, 2017

The Tax Cuts and Jobs Act (TCJA) has moved to the Senate floor. If enacted, this tax cut would increase the federal debt by many billions of dollars annually, just like its sister version that passed the House recently.

Despite this large tax cut, significant help for low- and middle-income families with children is missing from both bills. Few of the tax-lowering changes in the bill are targeted at families with children and none specifically at families with young children.

Leaders in both parties have expressed that policies targeting families with children should be included in tax reform. Senators Rubio and Lee introduced an amendment today that would give more low-income families tax relief by allowing families with even very low-incomes to benefit from the child tax credit (CTC) and further increase the maximum CTC. This amendment has not been made part of the TCJA.

Based on our analysis of the TCJA’s impact on different income groups, average taxes for low-income families with children (those in the bottom fifth of the income distribution) would fall modestly ($30) under the House version of the bill. By 2027, these families would see their taxes rise modestly ($40).  

Families with children in the second fifth of the income distribution would swing from an average tax cut of about $300 to an average tax increase of $400. Low- and moderate-income families with children under age 3 would see smaller average tax cuts right after enactment and larger average tax increases in the future (figure 1).

house bill average cuts

Under the Senate version of the bill, families with children would see larger tax cuts in the early years of the budget window than in the House version, but all but the highest-income families with children would see their taxes rise by 2027 (figure 2). These increases stem from the expiration of almost all the bill’s changes to the individual income tax after 2025. (Cuts to the corporate income tax and other reductions in the taxation of business income would persist.)

senate bill tax cuts

Despite solid evidence that investments in children, particularly during the early years, can reap a lifetime of rewards, the TCJA delivers no significant benefits to families with children, including families with children younger than 3, in the lowest two-fifths of the income distribution. Under both versions of the legislation, tax cuts for these vulnerable families would be modest and then diminish or disappear by the end of the budget window.

The TCJA would deliver about $1.5 trillion in tax cuts over the 10-year budget window from fiscal year 2018 to fiscal year 2027 but would not deliver substantial benefits to families with children. This legislation would be a missed opportunity to help parents.

In this Thursday, Nov. 16, 2017 file photo, House Speaker Paul Ryan of Wis., joined by House Republicans, speaks to the media following a vote on tax reform, on Capitol Hill in Washington. Photo by Jacquelyn Martin/AP.

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