In response to the economic crisis, Congress passed a $700 billion financial rescue plan aimed at buying the troubled assets of banks, stimulating the credit market and restoring confidence in the nation’s economy.
Regrettably, Senate leaders also attached a controversial tax extenders package to the financial rescue bill. Tax extenders are provisions that are generally set to expire each year unless they are renewed by Congress. The debate on tax extenders was already underway. By adding these provisions to the financial rescue plan, the Senate avoided a confrontation with the House about whether the tax extenders should follow PAYGO rules and be offset with either another source of revenue or a spending cut. The House’s version of the tax extenders bill did follow PAYGO.
The tax extenders attached to the financial rescue plan are not offset, so they will further increase the federal budget deficit. Among the items included in the tax extenders package was the one-year “patch” for the Alternative Minimum Tax (AMT) and an energy tax plan.
The financial rescue package also became the home for a one-year improvement in the Child Tax Credit, a credit of up to $1,000 to help families with some of the costs of raising a child. Under this provision, an additional 34,848 Minnesota children will qualify for the Child Tax Credit, and another 120,715 Minnesota children are expected to qualify for a larger credit.
Under current law, the Child Tax Credit is not properly indexed for inflation, and Congressional action is needed to ensure that low-income families do not become ineligible for the credit as their earnings are eroded by inflation. This improvement in the Child Tax Credit was achieved by lowering the earnings threshold for low-income families to qualify for the credit from $12,050 to $8,500 for this year.
Hopefully, this temporary provision will be extended beyond 2008 when the new Congress convenes next year. To learn more about the importance of the Child Tax Credit, read the Center on Budget and Policy Priorities issue brief.