Wealthy parents could get most help from Trump child-care plan

Those making between $50,000 and $200,000 see the biggest tax cut as a share of after-tax income.
MAR 02, 2017
By  Bloomberg

In his address to Congress on Tuesday, President Donald J. Trump repeated his commitment to making "child care accessible and affordable." It's a campaign commitment to help working parents that hasn't received much elaboration from Mr. Trump since the election. Ivanka Trump, the president's eldest daughter, has met with members of the House and Senate to discuss her own proposal for a child-care tax benefit — and that sounds a lot like what Mr. Trump outlined during his campaign. The available details have come under review by policy groups. The left-leaning Tax Policy Center analyzed the effects of a Trump child-care tax rebate and found that 70% of the savings go to people making more than $100,000. The Tax Foundation, a conservative-leaning group, also concluded that the plan would most benefit "relatively affluent, dual-income families," according to an interview with Bloomberg News. "Everyone appreciates a tax cut. That is unquestioned," said Elaine Maag, one of the authors on the Tax Policy Center report. "Are you giving it to the people who are the most in need?" Here's a breakdown of who benefits from the Trump proposal. $115 BILLION VS. $500 BILLION The smaller number is how much the liberal Tax Policy Center estimates the tax cut will cost over a decade — considerably less than the $500 billion price tag estimated by the conservative Tax Foundation. The disparity comes from the fact that the Tax Foundation treats all parents as having the same costs, while the Tax Policy Center does not. "They gave everyone relatively high expenses rather than calculate expenses by age," said Ms. Maag. "In the real world, young children are very expensive for child care, and older school-age children tend to not have that high expenses." "I think that's a realistic assumption, and I would make it too if I analyze the proposal again," said the Tax Foundation's Alan Cole. "However, there's just always going to be a large error bar in analyzing this policy until we see a longer, more detailed document than the one in the campaign. We're all just guessing a little." (The White House did not respond to questions about the child-care plan.) $10 The average annual tax savings for those who make less than $30,000 a year. Mr. Trump's plan includes three main proposals: a tax deduction, a refundable credit and a tax-free savings account. Low-income earners don't benefit much from the tax deduction, according to the Tax Policy Center, since they don't pay as much in taxes. "Low-income families will benefit not at all," said Ms. Maag. "High-income families have higher tax rates; when they avoid tax on income, it is more valuable." $360 The average annual increase in after-tax income for earners making between $100,000 and $200,000. Those making between $50,000 and $200,000 see the biggest tax cut as a share of after-tax income, with those in higher tax brackets seeing the most savings. Those living in places with high costs of living and high salaries, such as San Francisco and New York, will feel these benefits the most. "There's very different child-care costs depending if you're in the Midwest or on the coasts," said Ms. Maag. "You will benefit more in these higher-income places because you have higher child-care costs." 7.65% For low-income earners who don't owe taxes, Mr. Trump's plan proposes a refundable tax credit of either 7.65% of child-care expenses or 3.825% of the lesser-earning spouse's income. This is where low-income earners benefit most. "The credit is very small and covers a small group of people," said Ms. Maag. If the earnings of one spouse are lower than the earnings of the other spouse, the couple's rebate defaults to 3.825%. Depending on the breakdown of the earnings, the credit can look very different, as the National Women's Law Center points out. For a couple making $30,000, if one spouse earned $20,000 and the other spouse earned $10,000, the couple's rebate would be just $382.50. If one partner earned $25,000 and the other spouse earned $5,000, the rebate would go down to $191.25. $0 A low-income earner with a stay-at-home spouse will get nothing from the tax credit because it is tied to the lower-earning partner's salary. If your partner isn't working, you get no credit. Mr. Trump's policy outline on his campaign website emphasizes rewarding stay-at-home parents. But as the plan currently stands, only the deduction applies to stay-at-home parents, not the tax credit. "Trump goes out of his way to say stay-at-home parents will benefit from his child-care plan," says Ms. Maag. The tax deduction is for everyone, whether you stay at home or not. High-income families with a stay-at-home parent and child-care costs can still file for the deduction. Yet the low-income worker who stays at home does not get the tax credit. 7.7¢ This is the amount saved per dollar spent on child care for those who claim the credit under Mr. Trump's plan. Those claiming the deduction, on the other hand, will be able to write off between 10¢ and 39.6¢ for every dollar spent on child care.

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