Families in the United States rely on key tax provisions to support their financial well-being and reduce poverty levels. The dependent exemption, earned income tax credit (EITC), and child tax credit (CTC) serve as crucial pillars in this support system. Surprisingly, these tax benefits have become the largest federal support for children, surpassing education, welfare, and nutrition programs.
The fate of these tax provisions, however, has been on a tumultuous ride. While the child credit and earned income credit have seen increases under recent administrations, the total support for these benefits as a share of the GDP hit a historic low in 2023. This downward trend, if left unaddressed, could have profound implications for families in need.
Legislation plays a pivotal role in shaping the roller coaster journey of these tax credits. The Tax Jobs and Cuts Act of 2017 implemented temporary changes that increased the child credit but eliminated the dependent exemption. The lack of indexing for inflation further contributes to the erratic nature of these tax benefits.
Repairing the roller coaster ride of tax credits is essential to meet the diverse objectives of these provisions. The dependent exemption, EITC, and CTC aim to balance tax burdens based on income, incentivize work, and provide support for families. Striking a balance among these objectives poses a considerable challenge, especially with the current trend of reducing support as a share of GDP.
To address this issue effectively, policymakers need to rethink these tax policies and consider a more sustainable approach. Perhaps separating work subsidies from child subsidies and aligning them with economic growth could lead to a more equitable and effective system. However, these reforms come with additional costs and the need for a broader budget reform to reset national priorities.
As discussions continue on the fate of these tax provisions, it becomes clear that the well-being of families and children should remain a central focus. Restoring and expanding the child tax credit has garnered support, highlighting the urgency of addressing the challenges faced by families in accessing vital financial assistance.
The upcoming expiration of crucial tax credits presents an opportunity for Congress to rethink their approach and prioritize families with children. By adopting sustainable budget practices and making informed decisions, policymakers can ensure that tax policies align with the needs of the most vulnerable in society, setting the stage for a brighter future for American families.
