California parents would get big tax breaks under Biden’s COVID economic relief plan
Chances are California parents will soon get more tax breaks that will probably be worth thousands of dollars.
President Joe Biden is proposing big one-year increases in both the credit for child care, which allows breaks for the cost of such care, and the Child Tax Credit, which allows qualifying parents to reduce their tax bill for each child.
Expanding the Child Tax Credit could help the parents of an estimated 10.1 million children in California. The poorest 20% of state income earners – who make less than $26,500 a year – could get an average $4,250 tax break, according to the Institute on Taxation and Economic Policy, a Washington-based economic research group.
In California, Biden’s proposals “would have a significant impact,” said James Moses, policy chair of the California Association for the Education of Young Children.
The tax savings are part of Biden’s $1.9 trillion economic relief package. While many Democrats and Republicans have qualms about the overall proposal – Republicans say it’s too expensive, while many Democrats say it isn’t enough – so far there’s been little serious opposition.
An alternative being pushed by 10 Senate Republican alternative does not include the tax breaks, but a source close to the group said it has not been ruled out.
Tax Breaks for Parents
Child tax credits have long had support from both parties. Helping parents fits squarely into the conservative effort to promote stable, prosperous families. It helps the liberals’ push to get more people out of poverty.
Families earning $125,000 or less would be fully eligible. Partial credits would be available to families making up to $400,000 “so they receive benefits at least as generous as they can receive today,” according to a Biden administration fact sheet..
The credit, last increased in the Republican-authored 2017 tax cut bill, now allows qualified parents to subtract $2,000 per child 16 and under from their tax bill. The credit is reduced for incomes above $200,000 for an individual and $400,000 for a couple filing jointly.
Biden would increase the credit to $3,000 per child, plus an additional $600 for each child under 6.
The Institute for Taxation and Economic Policy estimated that the second-lowest 20% of California income earners, those making $26,500 to $46,900, would save an average $3,030.
The middle 20%, who make $46,900 to $75,900, would get an average $2,760 break. The next group of 20% would see an average $2,250 break. They earn $75,900 to $134,100.
The next 15% of incomes would save an average of $2,160. They earn between $134,100 and $313,700.
Among the wealthier earners, average savings would range from $70 for the top 1% of incomes – those making more than $855,900 – to $1,620 for the next 4%, who make $313,700 to $855,900.
Biden would also make the credit fully refundable. That means that even if someone owes less than the credit in taxes, they could get the credit as a payment from the federal government. Currently, that refundable feature can provide no more than $1,400 for qualified taxpayers.
That’s an important change, said Chris Hoene, executive director of the California Budget & Policy Center, since the credit is now not helpful to the parents of the poorest children.
Tax breaks for child care
The child care tax credit currently allows qualifying families to deduct a percentage of their expenses, up to $1,050 for one child to $2,100 for two or more. Credits run from 35% of child care costs for families earning less than $15,000, dropping to 20% for those making $43,000 or more.
Biden would increase the percentage so that families could get as a credit up to half their spending on child care for children under 13. The maximum credit would be $4,000 for one child and $8,000 for two or more children.
Charles Joughin, communications director at the First Five Years Fund, a child advocacy organization, called the proposal “incredibly important.”
The conservative Family Research Council, while not specifically endorsing the plan, supports “what’s best for families,” said Mary Szoch, director of the group’s Center for Human Dignity.
One drawback is that the credit would be available to higher income families, said Andrew Lautz, manager of government affairs at the National Taxpayers Union.
While he saw an urgent need for temporary help for child care providers and parents, he did not see a need for higher income parents to get a break. Lower-income families, he said, “are the most likely to be struggling and have parents out of work.”
The tax breaks, said advocates, would help child care providers stay open and employees continue to work.
“The child care tax credit for families will be crucial to the equation so that working parents can better afford child care. But that’s only part of it,” said Joughin. “Providers will need more direct financial relief if they are to remain in business and be around to care for America’s children.”
The Biden plan includes a $25 billion emergency stabilization fund to help providers “in danger of closing.” It’s designed to help them pay for rent, utilities, payroll and cleaning. He would provide another $15 billion for a program to help people who have lost their job during the COVID pandemic with child care costs. The Senate Republican plan would provide a total of $20 billion for a the child care program.
Can Biden’s plan pass Congress?
Biden’s $1.9 trillion economic relief package has been criticized by some Republicans as too expensive.
“It’s way over the top. It’s excessive,” Sen. Pat Toomey, R-Pa., a member of the tax-writing Senate Finance Committee but not the group of Republicans pushing an alternative plan.
That plan would cost about $600 billion, but is widely seen as an opening bid of sorts. In a Congress controlled by Democrats, much of Biden’s plan is seen as having a good shot at winning approval.
“Right now we’re just working through all the figures and doing everything we can to make sure Joe Biden’s successful,” said Sen. Joe Manchin, D-W.Va., who has been a key player in building bipartisan support for the plan.
This story was originally published February 2, 2021 at 5:00 AM with the headline "California parents would get big tax breaks under Biden’s COVID economic relief plan."
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