A Bad Idea for the Tax Conferees

by Ramesh Ponnuru

Deroy Murdock argued on NRO yesterday that Republicans should change two provisions of the Senate bill, cutting corporate tax rates faster and expanding the child credit from $1,000 per child to $1,600 (as in the House) rather than $2,000. Robert VerBruggen has already responded by pointing out the counterintuitive effects that a faster corporate-rate reduction would have.

Murdock writes,

Before anyone screams that this would let tungsten-hearted Republicans gleefully “hurl America’s children under the bus,” remember: Today’s per-child tax credit is $1,000, so inserting the House language into the final tax measure would increase by 60 percent the tax credit for “the children, the children; Think of the children!”

However, this would not double that tax benefit, as otherwise free-market Republican senators Marco Rubio of Florida and Mike Lee of Utah want. In exchange for a mere 60 percent more love than today’s U.S. tax code showers on this country’s amazing boys and girls, every American — even the childless and those with adult offspring — would benefit from giving U.S. job creators their biggest tax cut ever, and in just over three weeks, not 13 months.

Murdock is mistaken about the effect of his proposal. He is ignoring another feature of both the House and the Senate bills: the abolition of the dependent exemption. That exemption is worth about $1,000 per child to households in the 25 percent tax bracket. Abolishing it and raising the child credit by $600 leaves many of those households behind by $400 per child. Doubling the child credit just leaves those same households even.

In the 15 percent bracket, the exemption is worth about $600 per child. Abolishing it and raising the credit by $600 leaves those households even rather than “showering them with love.”

And the trade gets worse over time. The dependent exemption increases with inflation under current law. Under both the House and Senate bills, the child credit does not.

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