Slashing taxes is generally a popular move for politicians, but the sweeping tax system overhaul making its way through Congress may put that theory to the test.
The legislation came two steps closer to reality yesterday, when the House of Representatives passed a bill that would cut taxes for corporations and individuals by $1.5 trillion. The Senate is on track to pass a similar measure, after members of the chamber’s Finance Committee voted to approve their version of the tax package late Thursday night.
How the legislation will ultimately impact working families largely depends on whom you ask. The bills do more than just slash taxes significantly (although not for everyone). Two last-minute additions mean working families may have more access to paid leave in 2018, as well as a nice chunk of cash in the form of an increased child tax credit.
But critics say the two proposals may not put as much money in your pocket as you think. Here’s what they could mean for your family:
Paid Leave Tax Credit
The Senate version now includes a tax credit for all businesses that offer at least two weeks of paid leave to their employees, a provision championed by Republican Sen. Deb Fischer of Nebraska.
Fischer has introduced similar legislation in the past, but says the tax reform bill made a perfect home for her proposal, since it’s a tax credit for businesses—one she hopes will help encourage more small businesses to offer paid leave to their employees.
“A lot of big companies provide paid maternity and paternity leave. It’s smaller businesses where it’s really tough for them to do that, especially family businesses,” Fischer explains.
Under the proposal, which is a two-year pilot program beginning in 2018, businesses that offer at least two weeks of paid leave at 50 percent of an employee’s salary would be entitled to a tax credit equal to 12.5 percent of the amount paid to the employee. If they pay over 50 percent, they would receive a bigger tax credit, up to a 25 percent cap. In effect, businesses would receive a tax credit equal to about a quarter of what they pay the employee while on leave.
One big caveat: Companies could only receive the credit for employees who make less than $72,000 per year.
Critics say the tax credit won’t help many families who need paid leave, for several reasons. First, “It’s not covering a significant chunk of the cost, so it’s hard to imagine that many companies are going to start offering paid leave as a result of this incentive,” says Aparna Mathur, Ph.D., a resident scholar in economic policy studies at the conservative-leaning American Enterprise Institute.
Another big concern is that parents who work at a place with fewer than 50 employees aren’t protected by the Family and Medical Leave Act. “That means even if an employer starts providing paid leave, it’s not going to come with job protection, so that means they are not going to even take the two paid weeks because they’re nervous about not having a job at the end of it,” Mathur explains.
Vicki Shabo, the vice president for the National Partnership for Women & Families, worries the proposal will simply subsidize companies who already provide paid leave to their employees. “This tax credit has a very good chance of providing a corporate tax break to those companies without expanding access to workers in other companies,” she says.
Shabo would like to see Congress pass something along the lines of the FAMILY Act, proposed by Sen. Kirsten Gillibrand (D-N.Y.) and Rep. Rosa DeLauro (D-Conn.), which would provide paid leave directly to employees through a federal payroll deduction, rather than a tax credit to employers.
The House version doesn’t contain a similar proposal, so it’s unclear if the tax credit will make it into the final bill. “I think my [Senate] colleagues on the conference committee are going to fight hard to keep it in,” Fischer says.
Child Tax Credit
Parents looking to defray the sky-high costs of daycare might have taken hope from the fact that the Trump administration, and notably Ivanka Trump, had reportedly championed a $500 billion proposal to help families cover childcare costs.
However, that proposal seems to have been shelved in favor of a more modest increase in the child tax credit, which would put money in the pocket of all families, and not just ones who utilize childcare.
The House plan would increase the credit from $1,000 to $1,600 per child. The Senate version would increase it to $2,000.
The move is being hailed as a political win for Ivanka Trump, but experts caution the increased credit won’t mean a big tax savings for lower-income families, since it isn’t fully refundable. (So families who don’t have a tax liability don’t receive any money.)
“According to analysis by the Center on Budget and Policy Priorities, a mother working full time at a minimum wage job would get at most a $75 dollar increase,” says Amy K. Matsui, senior counsel and director of government relations for the National Women’s Law Center. “In contrast, because families making half a million dollars are eligible to claim the credit for the first time, you could see a family making $500,000 get the full $2,000 tax benefit. It's just a completely skewed priority. It’s not going to help the mom making minimum wage put food on the table or diapers on her kid.”
The Senate is expected to vote on the bill shortly after Thanksgiving. President Trump has expressed support for the bill and is likely to sign it.