Senate Republican Plan Raises Far More People’s Taxes than the Senate Democratic Plan
In defending tax breaks for the highest-income earners, Senate Republican Leader Mitch McConnell (R-KY) has argued, “We ought not raise anybody’s taxes at the end of the year.”
Strange, then, that the tax plan Sen. McConnell has put forward with other Senate Republicans would raise taxes on millions of families at the end of this year. In fact, based on our analysis, the Senate Republicans’ plan would likely raise taxes on more than 20 million families—about 10 times as many people who would see higher taxes next year under the Senate Democrats’ plan offered by Majority Leader Harry Reid (D-NV). Under Sen. Reid’s bill, the only people who would lose tax cuts are the roughly 2.1 million households, or less than 2 percent, with incomes of more than $250,000. The Senate is expected to vote on both tax plans next week.
How is the Senate Republicans’ plan a tax hike on some 20 million families? While it extends all of the tax cuts first enacted under President George W. Bush, it lets several important tax cuts enacted under President Barack Obama expire at the end of the year. Apparently Sen. McConnell thinks tax cuts signed into law by President Obama don’t count as tax cuts.
The Senate Democrats’ tax plan would extend these Obama tax cuts, which include:
- Tax credits for college tuition: Enacted in 2009, the American Opportunity Tax Credit provides a tax credit of up to $2,500 for families paying for college. 9.1 million families claimed it in 2011. If the credit is allowed to expire, families paying for college will only be able to claim the smaller credit that existed before. Some students will not be eligible for any college tuition credit, including third- and fourth-year college students.
- Tax credits for working families: In 2009 the Earned Income Tax Credit for low-income working families was expanded to reduce the credit’s “marriage penalty” (the potential loss of the credit’s benefits when couples get married and combine their earnings) and provide an additional benefit for families with three or more children (reflecting their higher cost of living). More low-income families also were made eligible for the Child Tax Credit through a rule allowing them to count more of their earnings toward the credit’s “refundable” portion. These improvements would expire at the end of the year, affecting 13 million working families with 26 million children.
In all, it is likely than more than 20 million families would lose tax credits under Sen. McConnell’s plan, compared to the 2.1 million high-income households that would lose some of their George W. Bush-era tax cuts under the Senate Democratic plan.
Seth Hanlon is Director of Fiscal Reform at American Progress.
Notes and sources
According to Citizens for Tax Justice, 8.9 million families benefit from the Child Tax Credit improvement while 6.5 million benefit from the Earned Income Tax Credit improvements. But some families benefit from both. In total, 13.1 million families are affected if the enhancements to both credits expire.
9.1 million households claimed the American Opportunity Tax Credit in 2009, a figure that would likely be higher for 2013 if the credit is extended. The American Opportunity Tax Credit probably also overlaps somewhat with the other two provisions.
See: Government Accountability Office, “Higher Education: Improved Tax Information Could Help Families Pay for College,” GAO-12-560, Report to the Committee on Finance, U.S. Senate, May 2012, available at http://www.gao.gov/assets/600/590970.pdf; Citizens for Tax Justice, “The Debate Over Tax Cuts: It’s Not Just About the Rich” (2012), available at http://www.ctj.org/pdf/refundablecredits2012.pdf; Tax Policy Center, “Extend 2001-10 Tax Cuts Except for Certain High-Income Provisions Individual Income and Estate Tax Provisions Baseline: Current Policy Distribution of Federal Tax Change by Income Percentile, 2013,” July 11, 2012, available at http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3445&DocTypeID=2.
The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.