Conferees' $500 Per-Child Tax Credit Frees 3.5 Million Families From Income Tax Rolls


Conferees' $500 Per-Child Tax Credit Frees 3.5 Million Families From Income Tax Rolls

November 15, 1995 1 min read Download Report
Grover Hermann
Visiting Fellow

(Archived document, may contain errors)

November 15, 1995


Scott A. Hodge Grover M. Hermann Fellow in Federal Budgetary Affairs

Congress is about to debate its seven-year plan to balance the budget and provide $245 billion in tax cuts to help families and to spur savings and investment. The centerpiece of this tax cut package is the $500 per-child tax credit which will benefit 28 million taxpaying families who are raising 51 million children. This tax cut will pump over $22 billion per year into local economies as working families provide for their children in a way no government program can. Here are some important facts on the Conferees' $500 per-child tax credit:

\u239\'95 Families with children are overtaxed. In 1948, the average American family with children paid only 3 percent of its income to Uncle Sam. Today the same family pays 24.5 percent.

\u239\'95 Giving a family of four a $500-per-child tax credit is equivalent to giving them one month's mortgage payment. The average family now loses $10,060 per year of its income due to the 45-year increase in federal taxes as a share of family income. This tax loss exceeds the annual mortgage payment on the average family home. The $ 1,000 in tax relief the Conferees' plan would give to a family with two children would help this family pay one month's mortgage payment.

\u239\'95 Millions of families stand to benefit. The families of 51 million American children, or 28 million taxpaying families, are eligible for the Conferees' $500-per-child tax cut.

\u239\'95 The Conferees' $500-per-child tax credit would eliminate the entire income tax burden for 3.5 million taxpayers caring for 8.7 million children. These 3.5 million families will receive over $2.2 billion per year in tax relief. Families with two children earning up to $24,000 per year would see their entire income tax burden eliminated by a $500-per-child tax credit, and families with three children earning up to $26,000 also would have their income tax YY1 #71195 bill eliminated.

Most families are middle-class. The Conferees' $500 child credit plan will direct 89 percent of all benefits to families with adjusted gross incomes below $75,000 per year -- middle-income by any standard -- and over 96 percent to families with incomes below $ 100,000.

Cutting taxes for all families -- regardless of income -- is fair. The Conferees' plan will cut the income tax burden of a family of four earning $30,000 per year by 51 percent and the income tax burden of a family earning $40,000 per year by 30 percent. Meanwhile, a family of four earning $75,000 would see their tax burden reduced by 12 percent, and a family earning $100,000 per year would receive a tax cut ofjust 7.4 percent.


Grover Hermann

Visiting Fellow