Taxpaying American parents have been hit with a tax hike yearly since 2018 because inflation has eaten up 25% of the value of the $2,000 child tax credit, or CTC.
In response, Freshman Senator Jim Banks (R-IN) is taking up the pro-family banner in the Senate, introducing a bill to increase the CTC to $3,000 for school-aged children and $4,200 for younger kids. His bill is nearly identical to a House bill, the “Family First Act,” sponsored by Rep. Blake Moore (R-UT).
Banks hasn’t issued an announcement about the bill yet, but his office confirmed that he’s introducing it today.
Both the House and Senate bills would offset the revenue loss of increasing CTC by reducing other tax breaks. Banks would abolish the deduction for state and local income taxes, a tax break that almost entirely goes to the wealthy. The bill also includes a work requirement: A couple gets the full CTC value only if they earn at least $20,000.
Banks, like Moore in the House, would also “pay for” his higher CTC by folding in the value of narrower, more complex tax breaks for parents. For instance, the Child and Dependent Care Tax Credit subsidizes formal daycare for working parents and is claimed by only 12% of parents (with most of the benefit going to wealthier parents).
Banks’s Senate bill and Moore’s House bill would abolish this daycare tax credit and fold the value into a higher CTC, which parents would then be free to spend on childcare if they wish. Alternatively, parents could use the money to work less, hire babysitters or other informal daycare, move closer to grandma, or pay for someone to clean the house and mow the lawn, freeing up Mom and Dad to take care of the child.
For many parents, family tax breaks are currently smaller than they were before the Tax Cuts & Jobs Act went into effect in 2018. TCJA doubled the CTC (for children under age 17), but it abolished the personal exemption.
Here’s the math: If TCJA were to expire, the personal exemption would come back at $5,300 in 2026. The median family household with kids earns a bit more than $120,000, which means that about half of married American families are in the 22% bracket or higher. Do the math, and you will see that the $5,300 exemption would be worth $1,166 for families in that bracket. Combine that exemption with the old $1,000 tax credit, and that would be a bigger per-child tax break than the current one — again, thanks to inflation.
This comparison also highlights how the CTC isn’t really a family subsidy but a matter of basic fairness. The CTC recognizes that a household earning $125,000 with four people is less wealthy than a house earning $125,000 with two people and, therefore, should be taxed less.
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Meanwhile, as U.S. birthrates are at record lows and are falling, a family subsidy might not be a bad idea.
With conservatives pushing this legislation in both chambers, maybe family tax breaks will move to the center of the GOP conversation.