How “Family-Friendly” is the Tax Reform Law?

If laws, like sausages, are better consumed as a final product than witnessed through their development, the fairest way to judge the recently-enacted "Tax Cuts and Jobs Act" is by the final product, not how it came to be—or what it could have been.

By those standards, the tax package recently signed into law will provide immediate, if modest, relief to nearly all middle-class families. The Tax Policy Center finds that, on average, take-home income will be about 2.2% higher next year.

The biggest beneficiaries, as has been rightly pointed out, are those in the top income quintiles. In a myopic way, this could be considered a pro-family measure—married-couple families are heavily over-represented in the upper-income bands thanks to having two potential earners, and high-income families will also benefit from the dramatically-expanded reach of the Child Tax Credit (CTC).

Let’s take a family of four making $90,746, the median income for their family size. Compared to the previous tax regime, their standard deduction is doubled to $24,000, pushing their taxable income into the new 12% tax bracket. Assuming their two children are under 17, their federal tax bill would drop from $6,219 to $3,629, a savings of 58%. The Tax Policy Center estimates that families with children will see lower taxes by $2,570, on average, in 2018.

However, that does not mean all families will benefit. Families with three or more kids get dinged from the loss of the per-dependent personal exemption, and the limited refundability of the CTC means they could end up owing more in taxes. Families that live in high-tax states and itemize deductions are also clear losers from this bill, though the extent to which reducing the deductibility of state and local taxes is a bug, rather than a feature, of tax reform depends on your ideological priors (and political constituencies.)

But the biggest missed opportunity in the bill was ignoring meaningful relief for low-wage parents. CTC champions picked up some wins, as the overall credit was doubled to $2,000. Amid down-to-the-wire negotiations, the amount of CTC refundable against income and payroll taxes paid was increased to $1,400. But the refundable portion of the credit is limited to 15.3% of earnings over $2,500, an income threshold that will prevent some parents in poverty from assistance. Additionally, the shift in the deductions structure means that low-income single parents will end up getting a bigger income boost than low-income married parents.

Undergirding all these changes is the far-from-certain assumption that future Congresses will be unwilling to let expire the tax cuts currently scheduled to sunset in 2025. Without an extension, nearly everyone would face higher taxes in 2027. Predicting the prevailing political winds next year, not to mention in seven years, is impossible, but counting on future political pressure to lock in the lower rates points to an unavoidable reality—Congressional leaders constructed a bill designed to give permanently lower rates to corporations while leaving families with long-term uncertainty.

Given their manic energy to deliver a “win” for business-friendly interests and longtime comfort with supply-side thinking, this Congress should have been expected to bend over backward to deliver lower business taxes, which it did. With those pre-existing incentives, and a process engineered to achieve them, families may have gotten as much benefit out of the bill as political realities allow.

Much of the credit goes to Senator Marco Rubio (R-FL), who was willing to put himself out on a limb on behalf of the larger CTC, as well as Sen. Tim Scott (R-SC), who was responsible for getting the amendment into the final conference report. Without their efforts, as well as other senators willing to go to bat for low-income families, the final tax bill would have been much less beneficial for families—and much less defensible.

The process by which Congressional leaders had to be begged and shamed into allowing broader refundability of the CTC, for example, revealed a sclerotic approach to tax policy and a notable apathy among some members towards the plight of the working poor. One can easily imagine the political and policy benefits of prioritizing a simpler, working-class friendly tax code that was truly oriented towards making life easier for all families.

But as a final product, “family-friendly tax reform” succeeds in being a gesture towards reform that reduces the short-term tax burden on most American families. Given the preferences and processes of the bill’s authors, perhaps that’s the best outcome that could be hoped for—after all, the process illustrated how it very easily could have turned out much worse.

Patrick T. Brown (@PTBwrites) is a graduate student at Princeton University’s Woodrow Wilson School of Public and International Affairs.

Editor's Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or views of the Institute for Family Studies.