Senate & House dueling Tax Bills are now (more or less) out. Experts have determined the regressive nature of both tax bills, that is, overall tax increases on middle, low, lower, and the lowest income working families as compared to generous tax cuts for high, higher, and the highest income taxpayers. (Pet peeve here, please media et al. stop using “middle class” in lieu of “middle income” because if there is one lesson from 2017 that is that income level and class are not correlated).
Below is one of many compelling graphs from the Center on Budget & Policy Priorities evidencing that every group with income levels below $75,000 suffers a tax increase as compared to their higher income counterparts tax decrease in 2027. Many of these lower income taxpayers, including those with incomes below $30,000, suffer tax increases much earlier and most lower and middle income groups suffer tax increases by 2025, when the individual tax cuts phase out.
But this post is about an issue I have not heard broadcast loudly enough. Certain anti-immigrant members of Congress have for at least a decade been trying to increase the already high tax burden on unauthorized immigrant families who most often have mixed status household members including millions of U.S. citizen children. Indeed, I have been writing about this issue for more than a decade in scholarship documenting that unauthorized working families suffer a higher effective tax rate than their U.S. citizen family counterparts. If you want the details of how this pencils out you can read about the “Illegal Tax” or the newest group of “undeserving poor” or a piece I wrote as early as 2004 on this issue about the intersection of the Earned Income Tax Credit and the Refundable Portion of the Child Tax Credit.
Simply, put unauthorized immigrant families have been paying into our federal, state, and local coffers for many decades. As much as $200 million in Social Security and Medicare taxes alone as evidenced by more than $1.3 trillion in earnings in the Social Security earnings suspense file as of 2014.
Here are a few compelling picture-graphs that tell the rather obvious story that unauthorized families pay tens of billions of dollars in taxes at a notably high effective tax rate every single year. This includes about $12 billion a year to Social Security and Medicare while they cannot by law qualify for any Social Security or Medicare benefits AND about another $12 billion a year in state and local taxes.
BUT apparently this is not a high enough tax burden for these families for certain members of Congress — who have been trying to increase tax burdens every year and now are trying to do so with a repeal of the Additional Child Tax Credit for these families. To date, they have not been successful because of countless passion warriors for economic justice who work tirelessly on the front lines.
The National Immigration Law Center has been vigilant about ensuring that the devastating facts of this repeal on hard-working families is front and center. Indeed, 200 organizations have protested the repeal of the Additional Child Tax Credit in a letter sent to Congress last week. In part these 200 organizations, including the National Association of Social Workers; the National Education Association; the National Coalition Against Domestic Violence; and UnidosUS, among others, write
“The letter focuses on provisions of the House and Senate tax bills that would deny the Child Tax Credit (CTC) and its refundable portion to children who lack a Social Security Number (SSN). Both bills directly target approximately 1 million DREAMer children and their families, threatening to drive them into poverty. Targeting any children in a family will harm the family as a whole — and over 5 million children live in mixed-status households. The House proposal includes similar provisions restricting eligibility for the American Opportunity Tax Credit, which helps students access postsecondary education.”
The facts are as follows:
Requires that taxpayers include a Social Security number to claim the Child Tax Credit for their qualifying children, which has been increased under the House Tax Bill from $1,000 to $1,600 per child (the refundable portion is only increased from $1,000 through annual inflation adjustments rounded to $100, so 2018 will be $1,100). The maximum refundable amount would not reach $1,600 for at least a decade. Moreover, the House increased the income phase-out threshold (starting at $230,000 increased from $110,000) so that more wealthy families will enjoy this tax credit to subsidize rich families with children. The House Bill also grants math error authority to deny the credit to families who do not include a Social Security number for the qualifying child almost automatically.
The House Bill also denies the American Opportunity Tax Credit to anyone who does not have a Social Security number (issued before the due date of the tax return). The AOTC reimburses higher education tuition costs up to $2,500 (100% of the first $2,000 and 25% of the next $2,000 (so up to $4,000 total out of pocket costs)) incurred during the tax year for the first 5 years under the House Bill. This repeal hurts the financial prospects of these students and in turn ours. The House Bill also grants math error authority to deny the AOTC to students almost automatically.
Requires that the qualifying child has a Social Security number (issued no later than the due date of the tax return) to claim the Additional Child Tax Credit, which has been increased under the bill from $1,000 to $2,000 per child (the refundable portion is only increased from $1,000 through annual inflation adjustments rounded to $100, so 2018 will be $1,100). The maximum refundable amount would not reach $2,000 for three decades. Moreover, the income phase-out threshold is significantly increased ($500,000 married filing jointly) so that more wealthy families will enjoy this tax credit to subsidize rich families with children.
Repeal of the ACTC Hurts Kids
Repealing the Additional Child Tax Credit for immigrant families who pay many tens of billions of dollars in federal, state, and local taxes annually, often with few, if any federal benefits, will increase our already too high child poverty rate.
The CTC is one of the most effective antipoverty tools in America today — lifting approximately 2.7 million people out of poverty in 2016, including about 1.5 million children. The physical and psycological harm children suffer from poverty hurts all of us exponentially. Scholars have demonstrated that low household income levels correlate with cognitive development, health, education, happiness, current and future jobs, household income, and taxpaying opportunities. A small investment in these households generates enormous returns for America at large.
Professor James Heckman, the Heckman Equation, at the University of Chicago has stated we should INCREASE, not decrease, Child (and Child Care) Tax Credits, making the increases fully refundable, so that our most vulnerable families realize increased benefits. Increased household cash directly correlates with better mental and physical health, education outcomes, job performance, income, food and housing security, taxpaying ability, and reduces crime, smoking, absenteeism, depression, and poor physical and mental health. Heckman’s extensive research on this issue derives a 13% return on investing in the youngest vulnerable kids (better than the DOW and NASDAQ).
Reducing income tax credits for Individual Taxpayer Identification Number (ITIN) holders hurts all taxpayers and local communities. In 2015, ITIN filers paid $23.6 billion in total federal taxes, including over $5.5 billion in payroll and Medicare taxes. Annual tax refunds grow local economies and support businesses. Tax refund dollars received by low- and moderate-income families are spent in their communities and have a 1.5 to 2 times multiplier effect, stimulating local businesses and creating jobs.
Bottom line, follow the Heckman Equation and let’s increase the Child Tax Credit for working families and our most vulnerable kids. Eliminate these new requirements for Social Security numbers as these families are already subject to federal income tax at a higher effective tax rate than similarly situated U.S. citizens. Make the increased CTC fully refundable for all children (even more compelling arguments here by tax experts at the CBPP) and they will soar like American eagles lifting all of us up with them. We are all immigrants and we are stronger when all of our children have the basic financial resources to live, thrive, and succeed.