- Thursday, February 11, 2021

A new proposal in Washington is certainly making quite a few waves. Mitt Romney introduced the Family Securities Act last week, and it’s thrown conservatives into a complicated and interesting debate on the role of governance in helping families thrive. 

Some say the proposal merely expands an already bloated welfare state, but in reality, Mr. Romney’s plan would simplify the tax code, give a much-needed boost to lower-class families, and get the IRS off their backs. The proposal would create a universal child payment of $4,200 for every child under six years old and $3,000 a year for every child ages six to 17 for couples who make under $400,000. This proposal would be paid for in full by eliminating and consolidating family welfare policies — policies that complicate the tax code and the lives of low-income families.

Right now, the government gives welfare to low-income families by using the tax code as a redistribution tool through refundable tax credits such as the Earned Income Tax Credit (EITC), which is a credit that varies by income level and number of children. The theory behind the EITC is that it is a work incentive, pushing a parent to earn at least $10,500 a year to receive the credit — and the credit increases as one works more. It then phases out once a person earns an amount that varies based on the number of children.

For example, a married couple with two children has an EITC worth $5,828 that begins to phase out once they earn $24,820 and completely disappears once they earn $52,493.

But, in execution, it’s too hard to understand for the people it’s supposed to help. In fact, the EITC is so complex for low-income families to figure out that between 43 and 50 percent of taxpayers who claim the EITC either overestimate or underestimate their tax benefit, according to the IRS. The EITCs complexity is a main reason that low-income taxpayers are audited by the IRS 50 percent more than the average taxpayer. 

What proponents of the EITC fail to truly consider is the work disincentives of the phase-out, as well as the fact that once a person begins to lose their EITC benefits, they’re likely beginning to lose other welfare benefits as well. Few people want to lose their government benefits just to earn a few extra dollars, so some people limit their hours to avoid losing benefits such as the EITC. 

Mr. Romney’s child allowance, on the other hand, would change the game by replacing the EITC with simple cash payments for families with children. It’d have minimal work disincentives for low-income workers since it’s a universal payment that families don’t lose until they earn $400,000. 

It’s a good idea.

Yet, despite its family-oriented nature, the proposal isn’t without its detractors on the right. Sens. Rubio and Lee have criticized Mr. Romney’s proposal because it replaces the Child Tax Credit, which they believe encourages low-income earners to work more. Of course, they’re wrong on that count. 

The $2,000-per-child CTC is available to all families with children under 17 if they make more than $2,500 a year and less than $400,000. And a $2,500 phase-in can hardly be considered a work incentive. After all, nobody would choose to work just to claim the Child Tax Credit. All that the phase-in amount works toward is eliminating a crucial child government benefit to parents who make no money. What’s more, the CTC has the same phase-out as Mr. Romney’s proposed child allowance, so it’s hard to see any argument for retaining the CTC based on its incentive to work.

The Child Tax Credit and Earned Income Tax Credit are simply tools politicians use to redistribute wealth through the tax code, propping up a failed welfare state. But redistribution can be done in a much better way. Mr. Romney’s proposal is a step in the right direction. It provides needed payments to families that they can use for childcare while eliminating complex tax credits that the IRS uses to hurt the lower class. In the end, it would help lift poor families out of poverty, and the children of America would get a lot more out of the bargain. What do we have to lose?

• Travis Nix (@tnix113) is a Young Voices contributor and a student of tax law at Georgetown Law. 

Copyright © 2024 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.

Click to Read More and View Comments

Click to Hide