The House of Representatives today is scheduled to vote on a House Republican proposal (H.R. 8) that purportedly extends all tax cuts but actually raises taxes on about 25 million families by reducing certain tax credits. The 25 million families include middle-class families and students who currently benefit from a tax credit for college expenses. Others are parents raising children on modest incomes who are helped by the child tax credit and earned income tax credit. Some, as illustrated below, are members of the U.S. military and their families.
The competing Democratic proposal, which has already passed the Senate (S. 3412 / H.R. 15), extends all income tax cuts for the 98 percent of families with incomes under $250,000 ($200,000 for singles), including these tax credits in their current forms.
Below are three illustrative examples of military families whose tax bill would rise next year under H.R. 8, the House Republican tax bill.
A corporal (E4) in the Marines with four years of service, who is married and has two children would see a tax increase of $448 under H.R. 8
In 2009, President Barack Obama signed into law improvements to the earned income tax credit—an important tax credit that boosts the earnings of low- and moderate-income workers. In 2009, 211,000 military families benefitted from the earned income tax credit.[1] One of the 2009 improvements reduced the tax credit’s so-called marriage penalty (phasing out the credit at higher income levels for families that file joint tax returns). H.R. 8 would let that provision expire, increasing the marriage penalty and thus reducing the EITC for married couples in the phaseout range.
With military basic pay of $27,660[2] (and assuming no other household income), this Marine Corporal’s family is affected by the worsened marriage penalty under H.R. 8. As a result, the family’s tax credit would be reduced by $448 under H.R. 8 compared to the current tax rules, the Senate-passed bill, and the House Democratic alternative. Here are the details:
Marine corporal (E4), four years’ service, married with two children
- Military basic pay: $27,660
- Earned income tax credit under current tax policy and Democratic plan: $4,326
- Earned income tax credit under H.R. 8: $3,878
Tax increase under H.R. 8: $448
A military police staff sergeant (E5) in the Air Force with eight years’ service, with a spouse and three young children at home, would see a tax increase of $1,118 under H.R. 8
Another provision enacted in 2009 boosted the value of the earned income tax credit for families with three or more children, reflecting the fact that these families have a higher cost of living. H.R. 8 would let this provision expire, so that families with three or more children get the same-sized tax credit as families with two children.
With basic pay of $34,723, this staff sergeant’s family would be affected by both the earned income tax credit’s worsened marriage penalty under H.R. 8 and the reduced credit for families with three or more children. In total, the family’s earned income tax credit would be reduced by $1,118 under H.R. 8. Under the Senate-passed bill and the House Democratic alternative, it would not be cut. Here are the details:
Air Force staff sergeant (E5), eight years’ service, married with three children
- Basic pay: $34,723
- Earned income tax credit under current tax policy and Democratic plan: $3,508
- Earned income tax credit under H.R. 8: $2,390
Tax increase under H.R. 8: $1,118
A private in the U.S. Army (E1) in his first year of service, who is married with an infant child, would see a $273 tax increase under the Republican plan
The child tax credit generally provides a $1,000 credit per child. But the credit is only partially “refundable” for families who do not have federal income tax liability in a given year. H.R. 8 would reduce the ability of some low-income families to claim the credit. That is because the credit’s refundability is based on the level of a family’s earnings above a certain threshold—and H.R. 8 would raise that threshold.
With basic pay of an estimated $18,196 in 2013, the Army private’s family’s income is too low to owe federal income tax because of the standard deduction and personal exemptions. Under H.R. 8, the family would only be able to claim a partial child tax credit, limited to $727. In contrast, under the Senate-passed bill and the House Democratic alternative, the family could claim the full $1,000 credit for its child. Here are the details:
U.S. Army private (E1), first year of service, married with one child
- Basic pay: $18,196
- Child tax credit under current tax policy and Democratic plan: $1,000
- Child tax credit under H.R. 8: $727
Tax increase: $273
These are just three typical military families who face a tax increase from H.R. 8’s failure to extend important tax benefits for working families. Many families with similar incomes, military and nonmilitary, would face similar tax increases because of H.R. 8’s failure to extend the child tax credit and earned income tax credit improvements. H.R. 8 also fails to extend the American opportunity tax credit for families and students paying for college.
In all, the House Republican plan raises taxes on about 25 million families, including 18 million families with children (constituting 37 percent of all families with children).[3] By contrast, all 98 percent of families with incomes under $250,000 ($200,000 for singles) would see no tax increase under the Democratic bill, and the 2 percent of Americans with higher incomes will keep tax cuts on their income up to those amounts.
Seth Hanlon is Director of Fiscal Reform at the Center for American Progress.
See also:
Endnotes
[1]. Internal Revenue Service data provided for the 11th Quadrennial Review of Military Compensation (2009 tax year).
[2]. The income figures are from “2012 Monthly Basic Pay Tables,” available at http://militarypay.defense.gov/PAY/BASIC/docs/Active%20Duty%20Tables/2012%20Basic%20Pay%20Table%20-%20Active%20uncapped.pdf. A 1.7 percent military pay increase is assumed for 2013. Other forms of pay and benefits (allowances, combat pay, retirement) that are not included in taxable income are not reflected in the calculations. All tax calculations use estimates of 2013 tax parameters for the earned income tax credit and the child tax credit.
[3]. See National Economic Council, “The President’s Proposal to Extend the Middle Class Tax Cuts” (2012), available at http://www.whitehouse.gov/sites/default/files/uploads/middleclassreport_7_24_2012.pdf. This report cites Department of Treasury data; Tax Policy Center, “table T12-0165.” This table analyzes the Senate Republican tax bill, S. 3413, which is the same in relevant part.