In an effort to correct an omission from last week’s tax cut bill (P.L. 108-27) that excludes certain low-income children and families from receiving the child tax credit, the Senate on June 5 voted, 94-2, to adopt a compromise bill (H.R. 1308) to restore eligibility to these families. Sens. Don Nickles (R-OK) and James Inhofe (R-OK) voted against the measure.
The compromise was brokered by Senate Finance Committee Chair Chuck Grassley (R-IA) and Sen. Blanche Lincoln (D-AR). Sen. Grassley said, “Without this additional provision we are working on now, we would have families who get an increase in the child credit of $400 per child get a check this summer, but we would not get checks to people who are entitled to the usual refundability because it was not extended.”
Sen. Lincoln agreed, noting that 12 million children would be affected. “We are recognizing that it is not only an important issue to deal with, providing these 12 million children the kind of resources they need in their families to grow strong, to learn values we want them to learn, to become good citizens and leaders and workers in this great Nation, but we are also recognizing the fairness of this issue in a timely way.”
Under the bill enacted last week, the child tax credit temporarily increases from $600 to $1,000 in 2003 and 2004. In 2005, the credit is reduced to $700, the same level provided by the 2001 tax cut law (P.L. 107-16); however, last week’s bill does not accelerate the increase in the refundability formula implemented by the 2001 law.
The 2001 law allows certain low-income families to claim a portion of the child tax credit, which they cannot currently claim because they have no income tax liability. Low-income families may receive a refund equal to 10 percent of their earnings above $10,000, up to the maximum amount of credit allowed for each year for 2001-2005. Beginning in 2005, the percentage would increase to 15 percent.
During the Senate’s consideration of P.L. 108-27, a provision was passed that would have accelerated the refundability increase to 15 percent beginning in 2003; however, that provision was dropped during a House-Senate conference. Under the Senate compromise plan approved this week, the child tax credit would be refundable up to 15 percent of an individual’s earned income in excess of $10,500. Additionally, H.R. 1308 would increase the phase out of the child tax credit for married couples to make it twice that of individuals, or $150,000. Finally, the bill also would create a uniform definition of a qualifying child for the dependency exemption, the child tax credit, the earned income credit, the dependent care credit, and head of household filing status.
Despite overwhelming Senate support, prospects for House passage are unclear at this time.
