Score One for Romney
Utah’s Sen. Mitt Romney, representing one of the nation’s most conservative states, proposes to send monthly checks to every family with children in the country. And his plan is applauded by Republicans as well as Democrats. How can that be?
The two principal existing federal support programs for families with children have a common shortcoming: they are based on income tax returns. The Child Tax Credit and Earned Income Tax Credit provide qualifying families a lump sum payment from the IRS in the winter/spring of the year.
This process presents hurdles to recipients, especially to those with the lowest incomes. The current programs require recipients to file a return and importantly, to properly request the credits. About 22 percent of those eligible for the Child Tax Credit don’t file for it.
Further, the lump sum payment doesn’t match the monthly expenses of raising children. Expecting parents to budget only a twelfth of their annual payment each month over the coming year would be a challenge for most of us.
Romney’s proposed Family Security Act would modify both the Earned Income Tax Credit and the Child Tax Credit, replacing them with a monthly check.
Gladden Pappin of the conservative New York Post says Romney’s plan “has the simplicity all too often missing from efforts of the kind. Instead of a complicated tax credit, most of the benefit will be administered by the Social Security Administration with a direct monthly payment.”
The conservative Niskanen Center estimates that poverty would fall by nearly 14 percent (5.1 million people) across the board and by one-third for children.
Welfare programs in the past have discouraged work: benefits could disappear if a beneficiary found a job because every dollar earned reduced welfare benefits. The Romney subsidy phases out only at higher incomes, removing the disincentive for low-income parents to find jobs.
For Republicans, Romney’s plan has another plus. It can give them a chance to move on from focusing on former President Trump, an increasingly divisive debate and one sure to annoy the swing voters needed to win elections.
Congressional Democrats find themselves behind the curve, given the wide bipartisan interest in Romney’s plan. They’re discussing half-measures like expanding the current EITC and making monthly payments instead of a yearly lump sum. Their proposal still leaves out those whose tax returns fail to take advantage of today’s credits.
Romney’s plan would raise annual CTC and EITC expenditures by $66 billion to a total of $254 billion but by replacing several other existing programs for families with children, about $41 billion per year would be saved. To make his proposal revenue-neutral, Romney proposes to eliminate the state and local tax (SALT) deduction, raising federal revenues by about $25 billion annually.
And there’s the rub.
About 87 percent of all federal income taxpayers use the standard deduction. Most of the remaining 13 percent who itemize deductions have high incomes and large deductions for state and local taxes (SALT), mortgage interest and retirement account contributions.
High-income taxpayers in high-tax, blue states like New York, California and Illinois, benefit the most from the SALT deduction, in effect subsidizing blue state profligate spending. Recognizing this reward to high-tax states, Republicans limited SALT deductions to $10,000 in their 2017 tax reform legislation.
President Biden and Democrats make much of “taxing the rich,” but they object strenuously to this limit. Restoring an unlimited deduction would save these high-income taxpayers $76 billion, increasing the federal deficit and shifting more of the federal tax burden to taxpayers in low-tax states like Utah.
In my book, anyone paying more than $10,000 in state and local taxes is “rich.” I pointed out Democratic hypocrisy on this issue in a previous column.
The Democrats’ beloved SALT deduction is the most regressive provision in the tax code. Romney’s proposal to eliminate it entirely makes his proposal highly progressive, a virtue Democrats preach in public but fail to practice in this case.
For Republicans, Romney’s proposal has the political virtue of highlighting Democratic SALT hypocrisy. Republicans will do their best to make this an issue but expect the liberal media to bury the story to the maximum extent possible.
Democrats naturally want to avoid attaching Romney’s name to any legislation that does move forward. Their alternative will be described as a Democratic proposal. To this, the old adage applies that there is an immense amount of good we can do if we don’t care who gets the credit.
At a minimum, Romney’s proposal is a test of Biden’s claim that he would embrace bipartisanship. Expanding support for families with children looks like a winner for both parties and Biden would be able to take a lot of the credit. If he fails even to meet with Romney to discuss the idea, we can rest assured that his claim to want to work with Republicans was all cheap talk.
For Republicans, this might be a way to move forward on a social policy issue that moves beyond the party’s lingering Trump issues. Let’s hope so.
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