By Andy Nielsen

Earlier this year, United States Senator Mitt Romney (R-UT) released a framework for his Family Security Act 2.0. As the name indicates, this is the second version of an aggressive redesign of our federal tax code in an attempt to streamline tax benefits to American families. Well, to some families.

The framework/plan (no bill text has been released) makes major changes to the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). Much attention has been placed on the former, given the temporary expansions made through the American Rescue Plan Act (ARPA) that expired at the end of 2021. Unfortunately, 175,000 Hoosier children were pushed back into poverty or deeper poverty due to the expiration of these important changes. The Senator’s framework makes changes to the CTC that are “fully paid for” by restructuring the EITC and eliminating the Child and Dependent Care Tax Credit, the State and Local Tax (SALT) Deduction, and the Head of Household filing status.

The Center on Budget and Policy Priorities provides an exceptional analysis and overview of the framework. Do yourself a favor and read it. The analysis provides details on the good (taxpayers’ qualifying credit fully refundable, monthly payments available, etc.) and the bad: “seven million families making less than $50,000 with about 10 million children, would end up worse off under the Romney plan than under current law, with the typical loss exceeding $800 per family.” The Institute on Taxation and Economic Policy (ITEP) digs even deeper with their new report on the plan, finding that one in four children will be worse off than under current law. As to not duplicate their analyses, let’s instead focus on some of the assumptions behind the Senator’s plan because, as we know, a model or plan is only as good as its assumptions.

Security

First, the framework commits an all too common mistake: conflating the intended, optimal design of a particular tax credit with that of another. The CTC and EITC are regularly discussed together due to their well-documented and potent ability to fight poverty and improve quality of life for individuals and families. But what are they designed to achieve? The EITC is a wage subsidy, it boosts earnings as workers increase their hours, which encourages work. The fundamental goal of the CTC is and should be to benefit children, and the credit is a tax offset that recognizes raising a child is expensive.

Unfortunately, the Romney framework only permits taxpayers to recoup the full CTC per child with earnings at or above $10,000. This is a work requirement and is incredibly misguided. Under $10,000 in earnings, the framework provides a lower credit. It’s a not-so-subtle way of saying that children from the poorest families are worth less than children from moderate- to high-income families. Also, the $10,000 threshold is indexed for inflation, while the maximum credit itself is not. Over time, the real financial impact erodes, putting long-term benefits of the Family Security Act 2.0 into question. Finally, the plan’s requirement that both children and parents have a Social Security Number is appalling. It treats some American children as second-class citizens.

Family

The framework’s overemphasis on marriage is evidence of the intended goal, which is not actually better tax policy. Marriage is simply not the best or right option for some individuals and children. There is confounding research on how and who marriage benefits, with the best outcome being biological parents cohabiting together without serious conflict. Anything outside of that and the benefits are fuzzy. Proposals that redesign our tax code and ignore the social reality of single heads of household push a mixed narrative of social, emotional, and physical health versus a path toward financial stability. Senator Romney’s elimination of the Head of Household deduction cuts a tax benefit for over 415,000 Hoosier households (2019) – 92% of whom come from households earning $75,000 or less. As ITEP points out, the “main reason some families fare worse under Romney’s plan is its treatment of single parents.”

Who Pays

Half of the plan ($46.5 billion) is paid for through changes to the EITC, redirecting and cutting benefits from households earning less than $60,000 per year. However, absent from this reform is consideration of why families earning $400,000 need a CTC at all. The Senator’s framework does not lower the maximum income or more aggressively phase out the CTC from higher-earning individuals and families. The net effect is that a family earning $25,000 is eligible for the same maximum credit as a family earning $400,000 per year; however, the former will also likely see cuts to their EITC as a way to pay for the higher-earners’ larger credit. Even worse, take a single individual with a four-year-old child living solely on Supplemental Security Income ($841 per month); the Romney framework would provide that family $0, but families earning $400,000 with a four-year-old would receive a $4,200 tax credit.

ITEP provides some very useful data on the distributional impact of these changes. Hoosier families earning between $153,700 and $335,000 would see the largest tax cut, on average $460. However, families earning between $26,000 and $52,300 would see an average tax increase of $90.

Conclusion

Again, no bill text has been released, so other questions on the framework will remain unknown for the time being. The framework assigns the administration of the monthly CTC to the Social Security Administration. Not a bad idea given the agency’s work on other benefit programs, but will the bill author provide for additional federal funding to properly administer? Regardless, the framework provided is misguided and therefore suboptimal. In order to create a stronger, more equitable economy, we can and should design our tax code in a way that provides opportunity and security for all families.