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A quick guide to how federal tax cuts affect kids, part 2

Aug 9, 2012

Not surprisingly Congress can't agree on a tax cut plan: Republican's in the House passed one version,  Democrats in the Senate passed a different one.

Last week I offered up a quick summary of what the Republican plan for extending the Bush tax cuts would mean for two programs that have been shown to benefit low-income kids, the Earned Income Tax Credit and the Child Tax Credit. There is much more to the debate than just these credits. A convincing case has been made for how these credits move families out of poverty so I think they are worthy of extra attention.

While Congress takes about five weeks off (paid vacation, really) to campaign, we have plenty of time to think about these tax policies. So, let's turn our attention to the plan being pushed by the Democrats.

To recap: Both parties agree that our huge federal deficit has to get smaller. The Republican plan, as summarized last week, would accomplish this through spending cuts and some changes to the tax policy. The plan would keep the Bush tax cuts in place, even for people who earn more than $250,000. But it would get rid of the EITC and perhaps the Child Tax Credit.

(There is a conservative tax plan being floated by conservative economist Robert Stein that would preserve and expand the Child Tax Credit. A conversation with Stein about what he calls his "pro-family, pro-growth" tax platform is coming soon.)

Senate Democrats and President Obama want to protect and expand these credits. But, they also want to increase government spending.

The President wants to get the American Jobs Act passed, which would fund infrastructure projects, cut middle class taxes, and give tax breaks to employers that hire unemployed workers and veterans.

The Jobs Act might  provide some economic benefit for low-income kids, but it isn't likely to benefit them the way increased education spending would, for example. The act will also increase federal spending in the short term, meaning that we wouldn't see a large reduction in the deficit until 2017

The takeaway?

Low-income kids might be better off under the Democrats' plan in the short term because of its protection of the EITC.  As I wrote last week:

The Center on Budget and Policy Priorities estimates the EITC lifted 3.3 million kids out of poverty in 2010, and that the Child Tax Credit lifted 1.4 million kids out of poverty

But longer term, these programs could easily be back at the center of the debate if the Democrats continue their attempts to increase spending. Something has to give pretty soon because the deficit does have to be cut. The Democrats may just move the battle down the road a little.