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The Child Tax Credit and the President's Tax Cut Plan , Record No.: RS20847, Date: March 30, 2001 1 (March 30, 2001)

handle is hein.tera/crstax0399 and id is 1 raw text is: Order Code RS20847 Updated March 30, 2001 The Child Tax Credit and the President's Tax Cut Plan Gregg A. Esenwein Specialist in Public Finance Government and Finance Division Summary The child tax credit was enacted as part of the Taxpayer Relief Act of 1997. The current credit is $500 per qualifying child. President Bush has proposed increasing the child tax credit to $1,000 per qualifying child. The President has also proposed making permanent the temporary rule in current law that allows the child tax credit to offset a taxpayer's alternative minimum tax. Economic theory does not provide a definitive answer to the question of how the costs of child rearing should be accounted for under an income tax. The empirical evidence suggests, however, that over the past 15 years the average federal tax rate on families in the low- and middle-income ranges has fallen and has remained relatively constant for upper-income families. Current Law The child tax credit was enacted as part of the Taxpayer Relief Act of 1997. Congress passed the bill because it believed that the tax structure did not adequately reflect a family's reduced ability to pay taxes as family size increased. The decline in the real value of the personal exemption over time was cited as evidence of the tax system's failure to reflect a family's ability to pay. Congress believed that the child tax credit would reduce families' tax liabilities, would better recognize the financial responsibilities of child rearing, and promote family values. Initially, for tax year 1998, families with qualifying children were allowed a credit against their federal income tax of $400 for each qualifying child. For tax years after 1998, the credit increased to $500 per qualifying child. To qualify for the credit the child must be an individual for whom the taxpayer can claim a dependency exemption. That means the child must be the son, daughter, grandson, granddaughter, stepson, stepdaughter or an eligible foster child of the taxpayer. The child Congressional Research Service °0° The Library of Congress CRS Report for Congress Received through the CRS Web

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