Center for American Progress

House Republican Attempts to Repeal the Adoption Tax Credit Show Their Real Priorities in Tax Reform

House Republican Attempts to Repeal the Adoption Tax Credit Show Their Real Priorities in Tax Reform

The tax plan recently introduced by the House GOP proposes eliminating several deductions and tax credits that support families. While changes have been made since its introduction, the original proposal provides evidence of congressional Republicans’ true priorities.

A father watches as his adopted son tries on his brother's eyeglasses at their home in Penfield, New  York. (AP/David Duprey)
A father watches as his adopted son tries on his brother's eyeglasses at their home in Penfield, New York. (AP/David Duprey)

The tax bill that House Republicans introduced on November 2 eliminated numerous deductions and tax credits that support families. Among the most unfathomable of the proposed cuts—and there were many—was the decision to end the adoption tax credit, which provides a critical support for families seeking to adopt a child. While an amendment to the bill has since restored the adoption tax credit, the fact that it was included in the first place provides evidence of House Republicans’ true priorities for tax reform—providing tax cuts for wealthy individuals and corporations at the expense of middle-class and struggling families.

The adoption tax credit helps families cover the high costs of adoption

More than 135,000 children are placed for adoption with families in the United States each year. Of these, 59 percent are adopted from the foster care system. Yet, around 110,000 children annually remain in foster care waiting for adoption.

Unfortunately, the cost can prove prohibitive for many families who might consider adoption. While costs can vary dramatically, the average cost of adopting a child in the United States is around $30,000. Adoptive parents also often face higher medical, mental health, and specialized education expenses related to addressing any special needs of their child. Special support needs can be especially prevalent for children adopted from the foster care system who may have suffered physical or psychological trauma or abuse prior to being placed. The tax plan’s proposed elimination of the medical expenses deduction would further harm these families.

To help offset the costs associated with adoption, since 1997, adoptive parents have been eligible for the adoption tax credit. The credit provides up to $13,570 per child for adoption-related expenses, which can be applied to federal tax liability for up to six years until this total is reached. The full credit is available to families earning up to $203,540 and adjusts annually indexed for inflation. In the past four years, the tax credit has helped more than 220,000 families, providing an average annual tax credit of just less than $4,500.

Eliminating the adoption tax credit would have disproportionately affected middle-class working families, same-sex couples, and disabled Americans

Eliminating this vital support for adoptive families could have limited the number of middle-class working families who choose to adopt. Currently, more than 60 percent of adopted children are adopted by low- and middle-income taxpayers, and 50 percent of children adopted from the foster care system are placed with families with household incomes at or below 200 percent of the federal poverty level.

In addition, same-sex couples raising children are four times as likely to be raising an adoptive child than their different-sex counterparts. For many same-sex couples, adoption is one of their only options for starting a family and the adoption tax credit has helped make this a reality for many. Fewer adoptions as a result of cutting the credit would also affect LGBTQ youth in foster care, who, according to one study, may account for up to one-fifth of youth in the child welfare system.

Similarly, people with disabilities—who are typically economically disadvantaged—are more likely to adopt. For example, according to Little People of America, 40 percent of children who have parents with dwarfism have been adopted, compared with 2.5 percent of the general population. A similar trend exists with an increase in families with one child with Down syndrome raising an additional adoptive child with Down syndrome. In both these cases, adoptive families with children with significant health care expenses would be negatively affected by the removal of this tax credit.

Rather than looking to eliminate the adoption tax credit, Congress should make it refundable

Eliminating the adoption tax credit has been described as “penny wise and pound foolish,” with economists finding that every dollar spent to support adopting children from the foster system produces $3 in benefits to society. These benefits come from government savings on items such as reduced special education and criminal justice costs, as a result of moving children from the foster care system into secure families. A 2006 study found that helping more families adopt saves the federal government approximately $127,000 per child due to reduced foster care costs.

Given the positive return on investment, instead of looking to eliminate the adoption tax credit, Congress should instead be furthering ways to expand the credit. In 2010 and 2011, thanks to the Affordable Care Act, the credit was refundable, allowing low- and middle-income families to receive a larger credit that was not limited by their federal tax liability. In 2012, Congress made the credit permanent, but also nonrefundable, once again limiting the full and immediate benefit for all but the highest earners. While the elimination of the credit is off the table for now, Congress should ensure it stays out of any future tax reform proposals, as well as look instead to bipartisan bills introduced in both the House and Senate this year to improve the credit by making it refundable.

The proposal to eliminate the adoption tax credit is one more example of the GOP’s willingness to make families and the most vulnerable pay for tax cuts for the wealthy and corporations

While adoption advocates should be proud that their efforts resulted in the adoption tax credit being added back in the most recent amendment to the Tax Cuts and Jobs Act, the bill is still a disaster for families and those wanting to start a family. At a time in their lives when families need the most support, House Republicans are trying to take it away. The bill eliminates tax breaks for families with large medical expenses; takes away higher education provisions, such as the ability to deduct student loan interest; and fails to address child care affordability—one of the largest expenses for families.

And why? All to provide tax cuts for the ultrarich and wealthy corporations. Republican leaders and President Donald Trump have repeatedly promised that their tax plan will help middle-class families. The proposal to eliminate the adoption tax credit, coupled with the anti-family policies still contained in the bill, provide a clear example of their true priorities in this bill. Rather than support middle-class and struggling families and the most vulnerable Americans, Republican leaders are once again showing that their true loyalty is to wealthy special-interest groups and the wealthiest 1 percent of Americans.

Simon Workman is the associate director of Early Childhood Policy at the Center for American Progress.

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Simon Workman

Principal, Prenatal to Five Fiscal Strategies; former director, Early Childhood Policy, Center for American Progress