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Child Tax Credit #3

2 min readBy: Gerald Prante

Regardless of whether one supports a stimulus package, the agreed-upon package by the House leadership and the White House could almost rival AMT in terms of the amount of complexity it adds to the 2008 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system. Not only do we have the government sending out checks to those who have no income tax liability (thereby requiring some method to reduce their tax liability), the proposal calls for yet another child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. . Yes. Make it three child tax credits.

We have the regular child tax credit, which gives everyone $1,000 per child with a floor at zero income tax liability (which is phased-out at $110,000). Then we have the additional child tax credit for those who are hit by that floor, thereby making the child tax credit refundable. But now we have a new child tax credit for $300 per child available to all, which is subject to different phase-out ranges than the current child tax credit. Furthermore, this is in addition to the personal exemption that a tax return gets for each child (which for someone in the 15 percent bracket is worth $525 for 2008) and other credits that are linked to children such as education credits, the credit for child and dependent care expenses, and the Earned Income Tax Credit.

And if last night’s Republican debate is any guide to the future of child tax credit policy, it may someday be the case that if you have a child, you just won’t have to file a tax return at all. In all seriousness, though, what is the difference between these child tax credits and the government establishing a program called “Paying You to Have Kids” whereby HHS would write out checks to every family, paying each one $2,000 per child? Conservatives would tend to hate that as it would be big government, but they will defend to the death every child tax credit because they can call it a “tax cut.” In reality, there is no difference. Whether you do it through the tax code or through a spending program, it must be offset by one of the following: a tax hike on others today, a tax hike on others tomorrow, a cut in spending today, or a cut in spending tomorrow.

Finally, it’s worth noting that because of the complexity surrounding this rebate, this tax year (2008) may be the year in which the number of lines on the standard 1040 actually hits 80. The number was 77 in tax year 2007 (for which we are currently filing taxes).