Wisconsin families with children could lose $139 million in tax credits next year – nearly $900 per affected family – unless expansions of two tax credits aimed at working families are preserved. President Obama and Congressional Democrats have proposed extending the expanded credits, and Congressional Republicans favor letting the expansions expire.
In jeopardy are the Child Tax Credit and the Earned Income Tax Credit, both of which were expanded by the Recovery Act in 2009. The effect of expanding the credits was two-fold: the credits helped pump more money into the economy to boost consumer demand, and they also helped mitigate the worst effects of the recession for the families receiving the credits. The expansions are set to expire at the end of 2012, at the same time the Bush tax cuts expire, the temporary payroll tax cut expires, and the federal unemployment program ends.
President Obama has proposed to make the expanded versions of the tax credits permanent. He has also proposed extending the Bush tax cuts for the first $250,000 in income. In contrast, a bill proposed by U.S. Senator Orrin Hatch (R-Utah), which could come up for a vote in the Senate this week, continues the Bush tax cuts for all income levels but does not continue the expanded versions of the tax credits for working class families.
If the expanded versions of the credits are allowed to expire, more than 150,000 Wisconsin families would see their tax refunds shrink by an average of $898 per family, according to a new report by Citizens for Tax Justice. One out of four children in Wisconsin live in families that would be affected by the loss of the expanded tax credits, and the total amount lost to Wisconsin families would be $139.2 million next year.
There has been a lot written about the differences between President Obama and the GOP approach with regards to the Bush tax cuts. But we should realize that there are also large differences between the parties on proposals about whether to extend expansions of tax credits. The outcome of upcoming budget decisions about these tax credits could have a significant effect on the economic well-being of Wisconsin families.