Expanding the Child Tax Credit, Part II: A Profile of the 4.6 Million Taxpayers Who Would Benefit from Raising the Phase-Out Threshold to $250,000

May 20, 2004

Fiscal Fact No. 11

When Congress created the child tax credit in 1997, it limited the full value of the credit to single taxpayers earning up to $75,000 per year or married couples earning up to $110,000. For taxpayers with incomes above these thresholds, the credit phased out at a rate of $50 for every $1,000 of income above the threshold. This means that the current $1,000 child credit is fully phased out at $95,000 of income for single taxpayers and $130,000 of income for married couples.

The House of Representatives is currently considering legislation that would increase the income threshold at which the credit begins to phase out to $125,000 for single taxpayers and $250,000 for married couples.

Using the Tax Foundation’s Individual Tax Model and Matched IRS/Census Database, Foundation economists were able to build a basic demographic profile of the 4.6 million American taxpayers – representing nearly 18 million persons – who would benefit if the phase out thresholds for the child credit are increased. The data shows that these taxpayers are overwhelmingly married, young, and, most likely, dual income.

If the value of the phase out threshold for the child credit is increased in 2005, these 4.6 million families will see an average tax cut of $1,877, or 9 percent of their current tax bill. Table 1 shows the current average tax liability for these taxpayers in various income ranges and the average tax cut that those taxpayers will get next year if the threshold is increased. The overwhelming majority of these taxpayers earn between $100,000 and $200,000 per year.

Table 1More than 80 Percent of the 4.6 Million Taxpayers Who Would Benefit from the New Threshold Level Earn Between $100,000 and $199,999

IncomeRange

Percentage of 4.6 Million Taxpayers in each Income Range

Average Current Tax Liability for These Taxpayers

Average Tax Cut for These Taxpayers

Tax Cut as a Percentage of Current Liability

$0 to $49,999

0.00%

$50,000 to $74,999

0.64%

$6,731

$1,509

22%

$75,000 to $99,9999

7.17%

$10,215

$1,529

15%

$100,000 to $199,999

81.06%

$18,438

$1,909

10%

$200,000 to $499,999

11.13%

$38,123

$1,896

5%

Source: Tax Foundation Individual Tax Model

Table 2 shows that the vast majority of these 4.6 million taxpayers are in the prime of their working years, between the ages of 35 and 54. Nearly 43 percent of these taxpayers are between the ages of 35 and 44, the typical age range for families raising young children. The percentage of taxpayers who will benefit from the higher threshold shrinks slightly in the 45 to 54 age group because the credit only applies to children under 17.

Table 2Nearly 83 Percent of Taxpayers Who Benefit from the Higher Phase-Out Threshold Are in the Prime of their Working Years

Age Range

Percentage of 4.6 Million Taxpayers within each Age Range

25 – 34

11.4%

35 – 44

42.9%

45 – 54

39.7%

55 and above

5.9%

Source: Tax Foundation Individual Tax Model

Tables 3 and 4 show that the taxpayers who will benefit from the expanded phase out thresholds are mostly married, full-time workers. Table 5 shows that nearly 74 percent of these taxpayers work in some type of professional occupation such as management or sales.

Table 3Nearly All Beneficiaries Are Married Couples

Marital Status

Percentage of 4.6 Million Taxpayers Who Are Married or Single

Married

91.8%

Single or Head of Household

8.2%

Source: Tax Foundation Individual Tax Model

Table 4 Nearly All Beneficiaries Work Full Time

Work Status for Major Wage Earner

Percentage of 4.6 Million Taxpayers in Each Work Status

Full-Time

88%

Part-Time

12%

Source: Tax Foundation Individual Tax Model

Table 5 Most Beneficiaries Are Working Professionals

Occupation

Percentage of 4.6 Million Taxpayers in Each Work Status

Executive, administrative & managerial

32.7%

Professional specialty

29.2%

Sales

11.8%

Other

26.4%

Source: Tax Foundation Individual Tax Model

These husbands and wives work across all sectors of the economy, public and private. Table 6 displays basic information about where they work. While the majority works in the private sector, nearly 19 percent are government workers – state, local, or federal – and about 11 percent are self-employed.

Table 6 Beneficiaries of a Higher Threshold for the Child Credit Work in All Sectors of the Economy

EconomicSector

Percentage of 4.6 Million Taxpayers by Economic Sector

Private Sector

60.2%

Government

18.8%

Self-Employed

10.8%

Other

10.2%

Source: Tax Foundation Individual Tax Model


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