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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, November 24, 2004

Gale on Tax Liabilities of Families with Children

William Gale (Brookings Institution) has posted Tax Bracket and Tax Liabilities for Families With Children on the Tax Policy Center web site. Here is the abstract:

Providing a helping hand to families with children is a common theme of many policy interventions, from Head Start to the child tax credit. Almost all recent social policy initiatives, however, including those that aim to help families and children, have occurred on the tax side of the ledger, typically as credits or deductions. At the same time, there has been increased resistance in Congress to providing credits that are refundable — that is, that benefit taxpayers (and their children) even if their net income tax liability falls to zero.

The table shows why opposition to making new or existing credits refundable spells bad news for the ability of any new policy to aid children in general, and lowincome children in particular. Almost half of all children live in households that currently do not pay any federal income tax (net of credits). About 80% of children who live with single parents are in households that do not pay any federal income tax. Unless a new tax credit or an expansion of a tax credit is made refundable, the subsidy cannot help those children, who are presumably the most economically vulnerable.

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Do you think we will ever be honest about the federal taxes paid by lower income people? Worker's in this country are subject to about a 15% surcharge on thier earnings due to FICA taxes. Interestingly, people at the high who get more of thier income from investments don't pay this tax. Much of thier income is taxed as capital gains at 15%. So much for progressivity.

Maybe families with kids should get a break on thier FICA taxes since its those kids which are going to pay for thier benefits anyway. Its the same kind of investing in the future argument that justifies the lower capital gains rates.

Posted by: Brice Tebbs | Nov 24, 2004 11:36:33 AM