The One Big Beautiful Bill Act did a lot of good for a lot of people, but parents, as a group, came home empty-handed.
The bill did increase the child tax credit from $2,000 to $2,200 per year and set it to index for inflation going forward. That’s an improvement on current policy, but measured in a fuller context, it’s a loss for parents or a break-even at best.
Consider these three measures of the tax treatment of families:
- Compared to the tax credit created by the 2017 Tax Cuts and Jobs Act, this new tax credit is much smaller, thanks to the massive inflation of the Biden years.
- Compared to the tax treatment of parents before the TCJA, combining the smaller tax credit then and the now-defunct dependent exemption, parents come out a bit worse under the new law.
- Compared to a household of five working adults, a family of five now pays about 23% more taxes on the same income.
It takes only a bit of math to see how parents are getting ignored by this beauty of a bill.
Start with the simplest calculation: inflation.
The 2017 TCJA increased the child tax credit from $1,000 to $2,000, effective in 2018. Soon came COVID-19, with its collapse in productive activity and massive influx of federal dollars. Then came former President Joe Biden’s effort at a new New Deal. Inflation ran wild, and the dollar has lost 22% of its value since 2018. Yet the CTC was fixed at $2,000.
To equal the $2,000 from 2018, Congress should have increased the child tax credit to $2,600 today — and then set it to rise with inflation every year going forward.
Congress didn’t do that because it would reduce revenue too much, but it did quadruple the deduction for state and local taxes, at a cost to the Treasury of about $30 billion per year, three times the price tag of the small CTC increase, showing Republicans’ priorities.
Many of the beneficiaries of this larger SALT deduction will be parents, but many will not. Likewise, many parents, including those in the middle class and in low-tax jurisdictions, will not benefit at all from the larger SALT deduction. On net, Congress chose wealthy homeowners over middle-class parents.
Here’s a second way to look at how Trump’s tax cuts treat parents: Parental tax breaks will actually be smaller for most parents beginning next year than they were at the end of the Obama administration.
When the TCJA in 2018 doubled the CTC from $1,000 to $2,000, it simultaneously abolished another tax break for parents: the dependent exemption. That effectively allowed parents to write off about $4,000 of income per child. That is, the TCJA’s added $1,000 in tax credits per child basically made up for the loss of a $4,000-per-child exemption.
Had the TCJA never passed, or had it expired at the end of this year, the personal exemption in 2026 would have been $5,300, while the child tax credit would be $1,000.
A family of four, under the old system, would get $2,000 in tax credits and $10,600 in dependent exemptions. The big middle chunk of this demographic is in the 22% or 24% bracket. In this alternate scenario, those in the 22% bracket, or less than $97,000 in taxable income, would get about $4,332 in tax breaks for their two kids. Those in the 24% bracket would get about $4,544 in child tax breaks.
Under the new bill that just passed, they’ll get $4,400. So that’s basically a wash — until we account for the treatment of older children.
Under the old system, parents would continue to take the personal exemption while their children were in college. Under the new system, there is no tax benefit for any child over 16. Losing five or six years of exemptions means the parents pay about $6,000 more in taxes over the years. The $1,000 baby bonus included in “Trump accounts” doesn’t make up for that.
That is, the median family of four would get more child tax benefits had the TCJA never passed or expired.
A final point of comparison: Consider a household of five adults, a few college friends renting a bachelor pad, that earns $150,000 between them. The five guys will pay an aggregate of $7,800 in taxes under the new tax law. Now the comparison: A family of five — a mother, a father, and three children — with the same $150,000 will pay $9,600 in taxes, which is 23% more than the bachelor pad pays.
By any of these measures, the tax bill left parents behind. Yes, most parents benefited from the tax breaks that everyone got, but the tax policies didn’t do much specifically to ease the financial burden of raising children.
At a time when marriage rates and birth rates are at record lows, this is a surprising oversight.