Lawmakers Announce Bills to Expand Middle-Income Tax Benefits

Senator Durbin: "Strengthening these tax credits is pro-family and pro-worker and will help lift millions of working families out of poverty. The Child Tax Credit and the Earned Income Tax Credit encourage work, help families make ends meet, and lead to healthier and better educated children. My colleagues and I are committed to getting them passed on behalf of all Americans."

Senator Schumer: "A college education is a necessity that is being priced as a luxury -- and it is breaking the bank for students and families across the country. With tuition costs continuing to rise, middle-class families should be able to take advantage of any savings they can get. That is why I am introducing the this bill, which will provide real relief for families by expanding the number of people who are eligible for this higher education tax credit and increasing the size of the tax credit itself. It's time we update the and grow the tax credit to better keep up with the rising cost of tuition, and make it a permanent fixture in the tax code. The difficulty of affording college tuition certainly isn't expiring."

Senator Murray: "Our economy has changed a lot in the last few decades, and it's time for our tax code to change with it. Wages for middle class families have been flat even as costs like child care have been rising. And while Republicans continue to call for more tax cuts for the wealthiest Americans and biggest corporations, I'm proud to introduce middle class tax cuts that will reward families for their hard work, deliver them some much-needed help to pay their bills, and help the economy grow from the middle out, not the top down."

Senator Brown: "The Earned Income Tax Credit and the Child Tax Credit lift families out of poverty, provide an incentive to work, and put real money back in the pockets of working Americans. That's why expanding and strengthening these tax credits is so important. To reform our tax code, we must start in the homes of working Americans -- not in corporate boardrooms."

Congressman Doggett: "The extension of the American Opportunity Tax Credit removes financial obstacles that prevents students from getting the education necessary to achieve their full God-given potential."

Congresswoman DeLauro: "We have an obligation to do what we can to help households cope with these mounting costs. Today the Child Tax Credit helps improve the lives of some 38 million families and in 2013 lifted 3.1 million people out of poverty. But without action the expansion Congress approved under the Recovery Act will expire, costing the average family $854 annually. This should not be an option. The Child Tax Credit Permanency Act would make the CTC permanent and index it to inflation. We have made permanent tax changes that disproportionately benefit the wealthy. We should do the same for working families."

Congressman Levin: "The expansions of these tax credits are of vital importance to tens of millions of families, and it is critical that they be extended. While the American economy has made significant strides in rebounding from the Great Recession, many middle class families have been left behind. These tax credits are a priority that should be addressed in tax reform to give families the certainty they need to succeed."

Bill summaries:

Working Families Tax Relief Act (Brown, Durbin, Neal, DeLauro)

The Working Families Tax Relief Act would expand and extend the Earned Income Tax Cred (EITC) and the Child Tax Credit (CTC). In addition to making the 2009 expansion of both tax credits permanent, the bill would expand EITC for workers without children, index the CTC to inflation, and make it easier for working Americans who qualify to claim the EITC.

American Opportunity Tax Credit (Schumer, Doggett)

The expanded AOTC legislation would take the previous AOTC one step further and enable families to offset the increasing cost of college tuition by growing the savings they can receive per student through the tax credit. For every dollar a family spends on college tuition, they could get a dollar off their taxes up to $3,000. The original AOTC tax credit is currently only available to families earning less than $180,000 per year and only provides a tax credit of up to $2,500. The new bill would grow the savings a family can receive per student to $3,000 per year and make the credit available to families earning up to $200,000 per year.

First, the bill would make the AOTC a permanent part of the tax code, eliminating uncertainty that it will be extended for many families who depend on it. Second, the bill would increase eligibility by changing the lifetime limit of the credit from a number of years claimed -- four years under current law -- to a maximum monetary amount of $15,000. For students enrolled full-time, the new AOTC formula would cover 100 percent of the first $2,000 and 25 percent of the next $4,000 of qualifying expenses, for a credit of up to $3,000 per year. For students enrolled in less than half an institution's normally required course load for a given year, the formula would cover 30 percent of the first $10,000, for a credit of up to $3,000 per year as well. Third, the bill would expand eligibility by allowing families earning up to $200,000 per year -- or $100,000 as a single-filer -- to take advantage of the credit. Finally, the bill would increase the refundable portion of the credit to $1,500, which will particularly benefit low- and moderate-income students with limited tax liability. If an eligible family does not owe any federal taxes, that family could still receive a refund from the credit, of up to $1,500. The new AOTC bill would boost the value of a potential refund for an eligible family from $1,000 to $1,500 per year per student.

21^st Century Worker Tax Cut Act (Murray)

The 21^st Century Worker Tax Cut introduces a new tax credit for parents who both work. The credit will help reduce the large, sometimes insurmountable, additional costs that come when both parents are working, such as child care, transportation, and a higher marginal tax rate. To qualify, couples must file jointly, have at least one child under age 12, and both have earnings. The credit is calculated as 10 percent of the first $10,000 of the second earner's income. The maximum credit is worth $1000 and begins to phase out starting at $110,000 of income.

Helping Working Families Afford Child Care Act (Murray, Bennet)

Child care costs have risen dramatically in the past several decades, and the main tax credit intended to help defray these costs has not kept up with the changing times. The Helping Working Families Afford Child Care Act will reform the Child and Dependent Care Tax credit so that it delivers a larger benefit to more families. Under the legislation, the allowable expense limit will be raised to $8,000 -- much closer to the average cost of childcare today, the credit rate will be flattened at 35 percent for most middle-income families, and the credit will be made refundable, so low-income families can benefit as well. Today, most families get only a $600 credit, but with these reforms, the credit will be $2,800 for most low and middle-income families.

The 21st Century Worker Tax Cut Act would complement critical reforms like raising the minimum wage and expanding the Earned Income Tax Credit for childless adults by updating our tax code to provide targeted tax cuts designed for today's workforce.

The problem:

Thirty years ago, the majority of families with children had only one parent working outside the home. But now, roughly two-thirds of married couples with children rely on the earnings from two workers to make ends meet.

However, because of way that the tax code treats married couples -- along with income phase-outs for the Earned Income Tax Credit (EITC) and direct spending programs, as well as additional costs incurred with both spouses at work (e.g., child care, transportation) -- dual-earning married couples with children can end up with implicit marginal tax rates higher than what many of the wealthiest Americans pay. In the worst of cases, these realities can discourage a potential second earner, like a mother considering re-entering the workforce, from returning to her professional career.

The solution: 21^st Century Tax Cut Act

The 21st Century Worker Tax Cut Act would make work pay for low-to middle-income families by allowing a 10 percent credit on up to $10,000 of the secondary earner's income. In other words, qualifying families can directly reduce their income tax bill by up to $1,000.

In order to qualify, both spouses must earn income during the year and the couple must have at least one child under the age of 12. Due to child care costs, young working families like these often face some of the highest implicit marginal tax rates on second earners' income, and this credit will help offset that.

Importantly, this new credit also reduces earned income for purposes of calculating the EITC. This feature is critical to ensuring that low-income, two-earner families who do not owe income tax -- because their combined income is too low -- and who otherwise would not benefit from the credit, instead benefit through an enhanced refundable EITC.

Last year, the Joint Committee on Taxation (JCT) estimated that a similar proposal would benefit 7.3 million two-earner families.

This legislation would not only help struggling workers and families -- it would also support broad-based economic growth. By making work pay for the households who are most likely to spend additional income, the 21st Century Worker Tax Cut Act would boost demand in communities across the country.

We should increase our outdated minimum wage to give millions of workers a raise, and then Democrats and Republicans need to come together to update our tax code to give today's struggling workers the boost they deserve. The 21^st Century Tax Cut Act would be a strong step toward an economy that works for all families, not just the wealthiest few.

The challenge parents currently face in finding affordable child care hurts our economy through increased employee absenteeism and reduced productivity. And it acts as a major barrier to women's participation in the labor force because, after factoring in child care costs and marriage penalties in our tax code, spouses -- most commonly mothers -- often find it difficult to earn enough to justify a return to a work.

The Child and Dependent Care Tax Credit (CDCTC), originally enacted in 1976, is intended to defray the cost of child care for working families. But the size of the current credit is outdated and does not reflect the costs of care faced by today's working parents. It also is poorly targeted, providing zero benefit to countless low-income families struggling to work their way up the economic ladder.

The Helping Working Families Afford Child Care Act would support work and expand opportunity for millions of Americans by updating our tax code to make child care more affordable.

The legislation would:

• Increase the amount of expenses eligible for the credit. Currently, working families are eligible for a CDCTC equal to between 20 and 35 percent of child care expenses up to $3,000 for one child and $6,000 for two or more children. Because the 20 percent credit rate applies to families with income over just $43,000, many households are eligible for a maximum credit of only $600 or $1,200 -- a tiny fraction of what child care costs working families each year. These expense thresholds are not indexed for inflation and, in fact, have not been increased since 2001.

• The Helping Working Families Afford Child Care Act would boost the amount of expenses eligible for the credit to amounts commensurate with the child care costs faced by today's parents -- $8,000 for one child and $16,000 for two or more children. Under the bill, in 2015, low- and middle-income families would be eligible for maximum credits of $1,600 or $3,200. The legislation also would index the new expense limits for inflation to ensure the reformed credit does not lose value over time.

• Make the credit fully refundable. Under current law, struggling families who do not owe federal income tax -- because their income is too low -- are ineligible for the CDCTC. As a result, those parents whose workforce participation is most likely to be encouraged by the credit get no benefit at all.

• The Helping Working Families Afford Child Care Act would fix this problem by making the credit fully refundable, enabling more low-income working parents to better afford the child care they need to boost their productivity on the job and support their families.

• Phase-out the credit for high-income families. Presently, high-income families -- even millionaires -- can claim a $600 or $1,200 child care credit even though they clearly do not need the assistance. This bill would better target the credit, and make it more efficient, by gradually phasing it out on household income over $200,000. The $200,000 income threshold would be indexed for inflation to ensure that middle-income families do not lose access to the credit over time.