Senator Mitt Romney (R-UT) this week proposed the Family Safety Act, which introduces new, more generous child benefits for families with children, while reforming other resources for low-income people. Romney’s plan would replace the existing Child Tax Credit (CTC), which has a minimum income requirement and other restrictions, with a near-universal child allowance administered through the Social Security Agency (SSA) rather than tax code. This new child benefit would be more generous than the CTC if the payment amounts were increased and the money provided monthly.
Romney’s proposal would also simplify the structure of the Earned Income Tax Credit, which is a wage subsidy for low-income workers. According to proponents of the proposal, it also offers several ways to increase revenue to make the budget deficit neutral by 2025. The proposal encourages the debate on reform of social support in tax legislation and recommends ways to simplify the existing support in tax legislation.
The Family Safety Act abolishes the Child Tax Credit (CTC), which is currently managed through the tax code. The current CTC is valued at a maximum of $ 2,000 per child, subject to a minimum income of $ 2,500, a phase-in rate, and a maximum refundability of $ 1,400 for non-taxable employees.
In its place, the proposal provides for a child benefit of $ 4,200 per child under 6 years old ($ 350 per month) and $ 3,000 per child aged 6 to 17 years old ($ 250 per month) administered by the Social Security Agency. Any child with a Social Security Number (SSN) is eligible, and is capped at a maximum allowance of $ 15,000 per year or $ 1,250 per month.
The allowance would have no minimum income requirement or phase-in (see Figure 1). It would still expire at $ 50 per $ 1,000 of income over $ 200,000 for single applicants and $ 400,000 for joint applicants. The Internal Revenue Service (IRS) would reconcile any overpayment or underpayment for tax returns.
Romney estimates that the extended child support would cost at least $ 229.5 billion annually through 2025, $ 112.5 billion more than the current CTC. The current tax law is expected to change after 2025, as many individual provisions of the law on tax cuts and employment expire, complicating cost estimates beyond this horizon.
Proponents of Extended Child Allowance argue that when combined with the other changes made in the American Social Security Network proposal, it would reduce child poverty by more than 50 percent. The proposal will contribute to the ongoing debate across the political spectrum on reforming the fiscalized social programs that the US has adopted to support families with children and low-income workers.
Romney’s plan would also reform the Earned Income Tax Credit (EITC) by converting the credit into an income credit up to a maximum of $ 1,000 per adult. While child-related benefits will be removed within the current EITC, the provision for adult dependents will remain in place (see Figure 2). Romney estimates the reformed EITC would cost $ 24.5 billion annually, $ 46.5 billion less than the current EITC.
Romney’s plan would simplify tax law by removing the complexities of the current CTC and EITC while expanding overall benefits for low-income families. But there would still be some complications. The new child benefit would continue to depend on the IRS to reconcile payments for higher earners above the exit threshold. Combined with other plan changes, marginal tax rates would rise for some households. It is difficult to consolidate benefits without creating some net losers, and it will be important to identify who would lose how much as the plan progresses.
To account for the cost of extended child benefit, the Romney Plan would allow for $ 66 billion in compensation payments, including three tax changes and two spending changes.
The Romney Plan would remove head of household status. Head of household status is available to single parents with certain qualifications: taxpayers who are unmarried, pay more than half the cost of running a home, and have a qualified child or dependent parent. This results in lower taxable income and marginal tax rates than if the taxpayer had to file as an individual. Romney estimates that elimination of household head status would result in annual savings of $ 16.5 billion by 2025.
The plan would also eliminate the Child and Dependent Tax Credit (CDCTC). The loan helps offset childcare costs for working parents. It is calculated by multiplying the qualified expenses by a loan rate. The loan interest varies between 20 and 35 percent depending on the adjusted gross income of the taxpayer. Qualifying Spending is capped at $ 3,000 for one Qualified Person or $ 6,000 for two or more Qualified Persons. This results in a maximum balance of $ 2,100 and the balance is non-refundable. Romney estimates that eliminating the loan would result in annual savings of $ 4.7 billion by 2025.
The third tax offset eliminates the individual deduction for state and local taxes paid (SALT deduction). Before the 2017 tax reform, taxpayers were able to deduct their income or sales tax liabilities plus their property taxes paid. The 2017 tax reform introduced a temporary limit of USD 10,000 for the individual deduction. The Romney proposal would go further and remove state and local tax deductions on taxpayers’ federal tax returns. This would primarily affect households with higher incomes. Romney estimates that eliminating the SALT deduction would result in annual savings of $ 25.2 billion by 2025.
The plan would remove Temporary Assistance for Families in Need (TANF) and make some changes to the Supplemental Nutritional Assistance Program (SNAP) eligibility for additional annual compensation payments of $ 19.6 billion. This would consolidate different nutritional aid programs with a cash benefit. The proposal may need to take into account the possibility that some beneficiaries may lose certain benefits that are automatically linked to TANF eligibility in certain states, e.g. B. the low-income program to support household energy (LIHEAP) and the special program for supplementary nutrition for women, babies and children (WIC)).
Overall, supporters of the Romney Plan argue that this would lead to a large reduction in child poverty, mainly through increased transfers to families with children in deep poverty and a substantial simplification of social benefits within the tax code. Some aspects of the plan need further review, such as: B. the impact on the effective marginal tax rates and the question of whether the tax legislation deviates from the equal treatment of taxpayers with similar incomes (referred to in tax legislation as horizontal equity). However, it is an important contribution to the ongoing debate on reforming tax breaks for children and work, as well as the broader social safety net.
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