Last month’s exchange between Marco Rubio and Rand Paul on the former’s proposal for a new child tax credit during a GOP debate brought to light a long simmering tension between pro-family and anti-tax factions within the Republican Party. Since the 1970s, these two rivals have coexisted peacefully based on a compromise in which Republicans put forth a strategy of providing pro-family tax relief in the form of policies like the expansion of the dependent exemption, earned income tax credit (EITC), child tax credit (CTC), and the elimination of marriage penalties in the tax code.
Paul, representing the anti-tax wing of the party, criticized Rubio’s proposal for a new $2,500 partially refundable child tax credit. He asked, “Is it fiscally conservative to have a trillion dollar expenditure. We’re not talking about giving people back their tax money. He’s talking about giving people money they didn’t pay. It’s a welfare transfer payment.”
Among Republicans, the charge of expanding “welfare” is a serious one to which Rubio was quick to respond, clarifying that families may only receive a refund insofar as it counts against their actual income and payroll tax liabilities. They would be getting back their own money and thus his proposal should be classified as pure tax relief that is limited to taxpayers.
This debate is nothing new to the GOP. We saw it in the 1980s when pro-family groups in favor of increasing the EITC and dependent exemption, winning in 1986, had to fight against anti-tax supply-siders in favor cuts to the top marginal tax rates, who had won in 1981. We saw it in the 1990s when pro-family groups in favor of the original child tax credit, introduced as part of the Taxpayer Relief Act of 1997, had to fight for it against anti-tax groups who favored capital gains and broad-based income tax cuts. We saw it in the 2000s when the Bush tax cuts paired an expansion of the CTC from $500 to $1,000 with further broad-based cuts in income taxes. Each time though, these rivals were able to cooperate under the banner of family tax relief. There would be tax relief – but it would be concentrated most on families with children. This strategy has been wildly successful in fostering a coalition between economic libertarians and social conservatives for policies that have gained wider support among the voting public. More importantly, these compromises have enabled both factions to retain their ideological purity. Taxpayers and families each receive recognition that they are worthy and important players in American life. By giving families benefits in the form of tax credits and exemptions, families avoid the stigma of “welfare” while policymakers claim credit for providing tax relief.
Recent events suggest that we have reached the limits of this strategy, testing the strength of the coalition in the process. Ironically, it is a victim of its own success. There is simply very little tax relief to offer working class families with children anymore. The combination of broad-based tax cuts and growth of child-related tax benefits has relieved families of much or all of their federal tax burdens. Mitt Romney’s infamous comment about the 47% of American who pay no federal income taxes is a case in point. Of those who pay no income tax, almost one-third of them families made nontaxable by these various child-related credits and exemptions. The refundable EITC, which was introduced in 1975 with the explicit goal of offsetting rising Social Security taxes for working class families, wipes out much of these families’ payroll tax liabilities as well. In 2014, a family of four earning one-half of the median income (about $38,000) had an effective tax rate of 0% for their income and the employee portion of their Social Security and Medicare taxes. For the same family earning the median income (about $76,000), their effective tax rate has dropped from a high of 18.4% in 1981 to about 13% today.
On one hand, pro-family and anti-tax activists should celebrate this achievement. The rising tax burden on families that we worried so much about in the 1970s has not only been halted but substantial beaten back or eliminated altogether. On the other hand, this poses a major problem for this coalition, exemplified by Rubio’s child tax credit proposal.
Rubio has gone to great lengths to frame his CTC as a decidedly pro-family measure in order to garner support from social conservatives concerned with making sure public policy supports stable families. At the same time, Rubio has been pushed to clarify that only families with a positive income and payroll tax liability are eligible for his CTC in order to appease anti-tax conservatives who will not support it unless it is pure tax relief measure. On its own, the distributional effects of his CTC would be little different from previous tax credit proposals, but Rubio is proposing to add his CTC on top of the existing system of credits and exemptions. This creates a problem. Because most working class families already pay little or no federal income and payroll taxes, they will receive little or no benefit from Rubio’s proposed CTC. The benefits will go disproportionately to relatively better off middle and upper class families. A middle class family of four earning the median income would receive the full $5,000 value of the credits for their two children. The same working class family earning half the median income would only receive about half this amount for the same two children. In this situation, working class children are only worth half as much as upper class children. The disparities only grow for larger families.
The most strident anti-tax conservatives are fine with this, concerned primarily with limited tax relief to taxpayers, but pro-family conservatives should take pause. How “pro-family” can a policy really be if it excludes some poor and working class families altogether? We’ve reached the point where one can no longer be anti-tax and pro-family but anti-tax or pro-family when it comes to child benefits. Where can they go from here? In order to answer this question we must first explore how the United States, alone among liberal welfare regimes, got here in the first place.
Josh McCabe is the Freedom Project Postdoctoral Fellow at Wellesley College, where his current research project looks at the politics of child-related tax credits in the United States, Canada, and United Kingdom. Follow him on Twitter @JoshuaTMcCabe.