Child Tax Credit Dilemma: Republicans Differ on Credit Expansion

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By Kaustuv Basu

The debate over changes to retirement savings and the state and local tax deduction in a tax reform bill was all-consuming this week for House Republicans. But Republicans are also trying to decide how to expand the child tax credit.

The GOP tax framework suggests increasing the income level at which the credit phases out. But Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) have been working with Ivanka Trump, President Donald Trump’s daughter and special adviser, to increase the size of the credit. Rubio said at a press conference Oct. 25 that included Ivanka that he would like a $2,000 credit per qualified child. The tax credit has to apply against the payroll tax for it to be meaningful, Rubio said on the Senate floor Oct. 26.

Not all Republicans support Rubio and Lee’s proposal. Some House Ways and Means Committee Republicans see the $2,000 amount as making a bill too expensive, a source familiar with the conversation told Bloomberg Tax. The source spoke on the condition of anonymity to speak more freely. With the president’s daughter personally involved in the discussion, the tax credit expansion could become a point of tension between House Republicans and the Trump administration.

Cost of Expansion

Rep. Carlos Curbelo (R-Fla.) told Bloomberg Tax that Republicans in the House want to make the tax credit “as generous as possible.” But the size of the credit would depend on the scope of the tax reform bill and the amount of deficit spending it could include. “So within those boundaries, we want to make it as generous as possible,” he said.

The idea is to expand the tax credit and make it more flexible, Ways and Means Chairman Kevin Brady (R-Texas) said. Brady met with Ivanka Oct. 25 to discuss the proposal, a committee spokeswoman said.

The child tax credit currently provides a credit of $1,000 per qualifying child for low-income and some middle-income families.

The conservative-leaning Tax Foundation estimated that doubling the credit to $2,000 per child would decrease federal revenue by about $640 billion over a decade. “Because the child tax credit is claimed by low- and middle-income families, doubling the child tax credit would lead to significantly higher after-tax incomes for taxpayers in the bottom half of the income distribution,” the Tax Foundation found.

Rubio Presses On

Rubio will continue to press for a $2,000 credit.

“If it isn’t at least $2,000 it would be raising taxes on working families. And no tax reform bill that raises taxes on working families is going to pass. I don’t believe the president would sign it,” Rubio told Bloomberg Tax.

Sen. Shelley Moore Capito (R-W.Va.) told Bloomberg Tax that “$2000 is where we would like to go. We still want to make sure whatever it is, it has meaningful impact, if it doesn’t go all the way to $2000.” Her prediction: The amount will be decided in a conference committee after the House and the Senate pass their respective tax reform bills.

There isn’t much incentive among leadership to negotiate with Rubio because he will almost certainly support tax reform regardless of the shape of the credit, a Republican aide said. For example, Brady is unlikely to take cues from Rubio—the House approach has been more family-focused and includes the idea of a credit for non-child dependents, the aide said.

With assistance from Colleen Murphy in Washington.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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