- The Ways and Means approach would simply increase the standard deduction for all households, benefitting those with higher tax liabilities more than middle-class families. Tweet This
- Failing to address the Child Tax Credit is a stunning missed opportunity. Tweet This
- The “Tax Cuts for Working Families Act” actively chooses indiscriminate tax cuts over prioritizing families and the middle class. Tweet This
Just a month ago, House Republicans were taking an aggressive posture on debt ceiling negotiations, insisting—rightly—that the nation’s financial situation required deliberate attention and fresh approaches.
“The American people expect Congress to use every opportunity—including the debt ceiling—to put a check on Washington’s spending habits,” Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee, noted at the time. “Just adding more ability to borrow without changing a person’s habits doesn’t fix the problem; it only makes it worse.”
But Republicans are now the ones falling back into their own bad habits. The “Tax Cuts for Working Families Act,” which was recently passed by Chairman Smith’s committee, is indifferent to the need for fiscal restraint, and actively chooses indiscriminate tax cuts over prioritizing families and the middle class. If Republican lawmakers see themselves as the party of parents and the working class, their tax policy blueprint is a funny way of showing it.
Conservative Members of Congress are correct to focus on inflation and rising interest payments on the national debt. But the House Ways and Means’ blunderbuss approach risks growing the deficit by a half-trillion dollars if made permanent, according to the University of Pennsylvania’s Penn-Wharton Budget Model. And the bill’s sins of both commission and omission leave working-class families in the lurch.
Failing to address the Child Tax Credit, for example, is a stunning missed opportunity. Many observers may recall the value of the Child Tax Credit was doubled, from $1,000 to $2,000, under President Trump. It is scheduled, on paper, to revert back to $1,000 at the end of 2025.
The Ways and Means bill could have at least addressed that cliff, if not actively improving the CTC along the lines suggested by Sen. Mitt Romney (R-Utah), or that proposed by Sen. Marco Rubio (R-Fla.) and Sen. Mike Lee (R-Utah). But the Ways and Means approach would simply increase the standard deduction for all households, benefitting those with higher tax liabilities more than middle-class families: 60% of the package’s total benefits would go to the top 40% of households by income, according to calculations by Elaine Maag of the Tax Policy Center. And it would do nothing to specifically address the burdens that face families with children.
Another missed opportunity is its choice of weapon. First, an aggressive tax cut that boosted demand would work at cross-purposes to policymakers’ goals of reducing inflation. But even if we assume the U.S. should undertake deficit-financed tax cuts, opting for expanding the standard deduction makes little sense. It is, after all, already indexed for inflation, meaning tax brackets will automatically adjust to the eye-popping rates of inflation we have recently experienced.
The Child Tax Credit, however, does not automatically adjust. (As National Review’s Ramesh Ponnuru recently pointed out, that $2,000 credit is now worth about $1,600 thanks to inflation.) Families getting hit hard by inflation are seeing the real value of the CTC erode every year. A bill aimed at responding to “two years of out-of-control inflation” should prioritize the CTC (including, perhaps, indexing it to inflation as well), rather than the aspects of the tax code that are already working as designed.
And then there are the sins of commission. By expanding the standard deduction (renamed in the bill, for branding purposes, as the “guaranteed deduction,”) by $2,000 for singles, $3,000 for Heads of Households (i.e., single parents), and $4,000 for married couples, the Ways and Means bill would increase the federal government’s subsidization of cohabitation.
While the 2017 tax reform eliminated some marriage penalties in the tax code, it left largely untouched the tax advantage some unmarried couples receive, relative to married ones, if one adult files as a head-of-household. Eliminating marriage penalties is a straightforward but expensive endeavor, but expecting Republicans to not make existing penalties worse should be a fairly modest ask.
The ungainly structure of the Tax Cuts for Working Families Act is driven, at least in part, by internal coalition politics. GOP House members from blue states, like New York, have sought to unwind the Tax Cuts and Jobs Act’s salutary decision to cap the benefit from deducting state and local taxes, which benefits taxpayers in high-tax states. Pressing for a standard deduction expansion, rather than a more targeted approach, is a way of appealing to suburban voters in blue states.
But it betrays a lack of confidence in the Republican agenda. The party, riven by so many internal factions, has traditionally been able to coalesce around one motivating principle—cutting taxes. But a plan that benefits seniors and upper-income households more than working- and middle-class families with children would threaten to expose more rifts inside the party than the GOP leadership might appreciate. And the Child Tax Credit, which has been a hallmark of successful GOP tax policy for two decades, deserves to be prioritized, not forgotten about, in upcoming negotiations with Senate Republicans and the White House.
In fact, the House Ways and Means Committee need not look far to find a potential champion for improving the Child Tax Credit. “Becoming a parent is the most important job a mother or father will ever have, but our tax code needs to reflect the growing needs of working families,” said one Republican lawmaker. “Making the Child Tax Credit permanent will allow families to plan, save, and invest in their future.”
That lawmaker, of course, was Chairman Jason Smith, introducing his 2021 bill to make the doubled Child Tax Credit permanent. Last year, Smith championed a laudable bill that should be a priority for a pro-life Congress, making pregnant woman eligible for the CTC. Another Ways and Means member, Rep. Brian Fitzpatrick (R-Pa.), has been a vocal champion for including the CTC in tax reform talks.
Republicans on Capitol Hill should listen to these lawmakers and rewrite the Tax Cuts for Working Families Act to be a bill truly worthy of the name.
Patrick T. Brown (@PTBwrites) is a fellow at the Ethics and Public Policy Center. He writes from Columbia, South Carolina.
Editor's Note: The 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.