Senate and House Democrats are introducing a series of bills to expand the Earned Income Tax Credit, Child and Dependent Care Tax Credit, and the American Opportunity Tax Credit, and create a new 21st Century Worker Tax Cut.
Congressional Democrats plan to challenge their Republican colleagues in the weeks before the GOP's budget rollout and argue that tax cuts should go to the middle class, not the wealthiest Americans and biggest corporations.
Senators Dick Durbin, D-Ill., Charles E. Schumer, D-N.Y., Patty Murray, D-Wash., Sherrod Brown, D-Ohio, and Michael Bennet, D-Colo., were joined Wednesday by Representatives Lloyd Doggett, D-Texas, Richard Neal, D-Mass., Rosa DeLauro, D-Conn., and Sander Levin, D-Mich., in introducing a series of bills aimed at cutting taxes for the middle class.
The bill sponsors and supporters intend to go to the floors of the Senate and House in the coming days to discuss the proposed legislation, call on Republicans to join them in supporting the bills, and talk about Democrats’ plans to grow the economy. Also on Wednesday, however, Republican Senators Marco Rubio, R-Fla., and Mike Lee, R-Utah, introduced tax reform legislation of their own (see Rubio Tax Cut Expands Business Deduction and Family Credits).
“Strengthening these tax credits is pro-family and pro-worker and will help lift millions of working families out of poverty,” said Durbin in a statement. “The Child Tax Credit and the Earned Income Tax Credit encourage work, help families make ends meet, and lead to healthier and better educated children. My colleagues and I are committed to getting them passed on behalf of all Americans.”
The Working Families Tax Relief Act, sponsored by Brown, Durbin, Neal and DeLauro, would expand and extend the Earned Income Tax Cred and the Child Tax Credit. In addition to making the 2009 expansion of both tax credits permanent, the bill would expand EITC for workers without children, index the CTC to inflation, and make it easier for working Americans who qualify to claim the EITC.
The expanded American Opportunity Tax Credit legislation, sponsored by Schumer and Doggett, would take the previous AOTC one step further and enable families to offset the increasing cost of college tuition by growing the savings they can receive per student through the tax credit. For every dollar a family spends on college tuition, they could get a dollar off their taxes up to $3,000. The original AOTC tax credit is currently only available to families earning less than $180,000 per year and only provides a tax credit of up to $2,500. The new bill would grow the savings a family can receive per student to $3,000 per year and make the credit available to families earning up to $200,000 per year.
“The extension of the American Opportunity Tax Credit removes financial obstacles that prevents students from getting the education necessary to achieve their full God-given potential,” said Doggett.
First, the bill would make the AOTC a permanent part of the tax code, eliminating uncertainty that it will be extended for many families who depend on it.
Second, the bill would increase eligibility by changing the lifetime limit of the credit from a number of years claimed—four years under current law—to a maximum monetary amount of $15,000. For students enrolled full-time, the new AOTC formula would cover 100 percent of the first $2,000 and 25 percent of the next $4,000 of qualifying expenses, for a credit of up to $3,000 per year. For students enrolled in less than half an institution’s normally required course load for a given year, the formula would cover 30 percent of the first $10,000, for a credit of up to $3,000 per year as well.
Third, the bill would expand eligibility by allowing families earning up to $200,000 per year—or $100,000 as a single-filer—to take advantage of the credit.
Finally, the bill would increase the refundable portion of the credit to $1,500, which will particularly benefit low- and moderate-income students with limited tax liability. If an eligible family does not owe any federal taxes, that family could still receive a refund from the credit, of up to $1,500.
The new AOTC bill would boost the value of a potential refund for an eligible family from $1,000 to $1,500 per year per student.
“A college education is a necessity that is being priced as a luxury—and it is breaking the bank for students and families across the country,” said Schumer. “With tuition costs continuing to rise, middle-class families should be able to take advantage of any savings they can get. That is why I am introducing the this bill, which will provide real relief for families by expanding the number of people who are eligible for this higher education tax credit and increasing the size of the tax credit itself. It’s time we update the and grow the tax credit to better keep up with the rising cost of tuition, and make it a permanent fixture in the tax code. The difficulty of affording college tuition certainly isn’t expiring.”
The 21st Century Worker Tax Cut Act, sponsored by Murray, would introduce a new tax credit for parents who both work. The credit would help reduce the large, sometimes insurmountable, additional costs that come when both parents are working, such as child care, transportation, and a higher marginal tax rate. To qualify, couples must file jointly, have at least one child under age 12, and both have earnings. The credit is calculated as 10 percent of the first $10,000 of the second earner’s income. The maximum credit is worth $1,000 and begins to phase out starting at $110,000 of income.
“Our economy has changed a lot in the last few decades, and it’s time for our tax code to change with it,” said Murray. “Wages for middle class families have been flat even as costs like child care have been rising.”
The Helping Working Families Afford Child Care Act, introduced by Murray and Bennet, aims to help families cope with rising child care costs. The bill's sponsors pointed out that the main tax credit intended to help defray these costs has not kept up with the changing times. The Helping Working Families Afford Child Care Act would reform the Child and Dependent Care Tax credit so that it delivers a larger benefit to more families. Under the legislation, the allowable expense limit would be raised to $8,000—much closer to the average cost of childcare today, the credit rate will be flattened at 35 percent for most middle-income families, and the credit will be made refundable, so low-income families can benefit as well. Today, most families get only a $600 credit, but with these reforms, the credit would be $2,800 for most low and middle-income families.
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