Just Taxes Blog by ITEP

The Working Families Tax Relief Act Would Boost Incomes and Economic Security for Workers and Children

The Working Families Tax Relief Act Would Boost Incomes and Economic Security for Workers and Children

April 10, 2019

Steve Wamhoff
Steve Wamhoff
Director of Federal Tax Policy

Sens. Sherrod Brown, Michael Bennet, Richard Durbin, and Ron Wyden (along with the backing of most of the Democratic caucus in the Senate) today rolled out a new proposal to expand the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC). Called the Working Families Tax Relief Act (WFTRA), the proposal would provide a substantial benefit, especially to low-income working families.

Changes to the Child Tax Credit

Changes to the Child Tax Credit (CTC) would provide the greatest benefit to low-income families who earn too little to fully benefit from the current credit and to families with young children.

Before the Tax Cuts and Jobs Act (TCJA), the maximum child tax credit was $1,000 and the refundable portion (which really helps poor families) was restricted to a percentage of earnings above a set amount. TCJA increased the child tax credit to $2,000 but limited the refundable portion to a lower amount ($1,400 in 2019) and left in place the earnings-based restriction.  A least one-third of children are in families who earn too little to get the full Child Tax Credit due to these limitations.

The WFTRA would do away with the restrictions on the refundable part of the CTC, so all families would receive the full $2,000 for each eligible child. The bill would also provide a larger credit of $3,000 for children under age 6. The motivation behind the larger credit is extensive research showing that the first years of children’s lives have a particularly dramatic impact on outcomes in the future. Additionally, for the first time the CTC would be adjusted for inflation each year so the value of the credit does not deteriorate over time.

Changes to the EITC for Workers with Children

The WFTRA’s changes to the EITC for workers with children are also significant. The bill would increase the maximum allowable credit for all types of families. To take one example, under current law a family with two children can receive a credit equal to 40 percent of up to $14,570 in earnings in 2019, which means the maximum EITC for such a family is $5,828 this year. The WFTRA would increase the credit rate for such families from 40 percent to 50 percent, giving them a maximum credit of $7,285 in 2019.

Changes to the EITC for Workers without Children in Their Homes

The WFTRA’s changes to the EITC are most dramatic for workers who do not have children in their homes. Some of these workers are childless, but others are non-custodial parents who provide support to their children. Under current law, these workers get very little from the EITC, a credit of just 7.65 percent of up to $6,920 of earnings in 2019, providing a maximum EITC of just $529.

The bill would increase the credit rate for these workers to 20 percent. It would also increase the maximum earnings that are credited to the same amount that applies to workers with one child (which is $10,370 in 2019). This would provide workers without children in their homes a maximum EITC of $2,074 in 2019, almost four times the maximum credit allowed under current law.

Under current law, those without children in their homes cannot receive the EITC unless they are at least 25 years old and no older than age 64. The WFTRA would expand the eligibility to those age 19 through 67.

New Among the Pantheon of Proposals to Dramatically Increase Tax Credits for Working People

The WFTRA is the latest proposal that would increase tax credits to alleviate income inequality, reduce poverty and provide greater economic security to families and children. Another proposal from Sen. Brown, the Cost of Living Refund Act, would make changes to the EITC that are even more dramatic than those in this proposal. A bill from Sen. Bennet and Sen. Brown, the American Family Act, would increase the Child Tax Credit more dramatically.

The WFTRA takes somewhat more moderate versions of those two proposals and combines them in one bill. Yet another proposal, Sen. Kamala Harris’s LIFT the Middle Class Act, would create a significant new tax credit on top of the CTC and EITC rather than expand existing credits.

These proposals deserve consideration and ITEP will soon publish estimates of the impacts of all of them.