In A Time When Government Debt Is Rising, The House Introduces A New Bill....

[Obama 2012 1,714]

http://online.wsj.com/article/SB10001424052748704250104575238531602862848.html?mod=WSJ_latestheadlines

WASHINGTON—A bill introduced Tuesday in the U.S. House of Representatives would give middle-class working parents a larger tax credit to offset child-care costs, following a similar proposal from U.S. President Barack Obama.

The bill was introduced by Rep. Allyson Schwartz (D., Pa.), who sits on the tax-writing Ways and Means Committee, and Rep. Michael McMahon (D., N.Y.).

It would allow a family with two children making $50,000 to claim a tax credit of up to $2,100 for child-care costs, while under current law the same family could receive a maximum credit of $1,200.

The credit amounts were last updated in 2003 legislation, but supporters say they do not reflect the increased entry of mothers into the work force or the rising cost of child-care.

"This proposal deals with the reality of our families today," said Ms. Schwartz. "More and more families are choosing to have both parents working, and child-care costs eat away at their economic security."

The credit is currently claimed by about six million families annually, according to the White House.

Single working parents or married couples where both parents work outside the home are eligible for the credit. It is designed to offset the cost of care for children 12 and under, or a disabled teen or adult family member.

The credit amount is determined by a formula, with a reduced credit available to families with income greater than $43,000. For taxpayers above that threshold, the maximum credit amount is currently $600 if there is one child receiving care, or $1,200 for two or more children.

The House bill would remove the income limitations so that all parents regardless of income could receive the maximum credit amount of $1,050 in the case of one child or $2,100 for two or more children.

"The median income for the state of New York is a little more than $70,000, making most families ineligible for the current 35% child-care tax credit," said Mr. McMahon. "It makes no sense" that families making less than the median income but more than $43,000 are unable to claim the maximum credit, he said.

Beyond helping the budgets of middle-class families, increasing the credit amount could also boost the economy by influencing parental decisions about whether and how much to work, said Alan Viard, a resident scholar at the American Enterprise Institute.

"There is clear statistical evidence that cheaper child care encourages people to work," he said.

But the change would not come cheaply for the federal government. It would add another $2.1 billion to the $3.5 billion annual cost of providing the credit, according to an estimate provided by Ms. Schwartz's office.

A bigger problem, according to Mr. Viard, is the difficulty inherent in enacting a targeted tax change like this one without a focused push from the White House. Mr. Obama mentioned the proposal in his State of the Union address in January, but it has not been in the top tier of legislative priorities.

"I don't see much opposition on the face of it, but there may not be a big push behind it," said Mr. Viard. "It seems almost like it has landed out there with a thud."

The House bill differs slightly from the White House proposal. The Obama plan retains an income phase-out so that families with income over $85,000 have their credit amount reduced. The bill from Ms. Schwartz and Mr. McMahon would eliminate the income phase-out.

The White House proposal followed a recommendation from the Middle Class Task Force headed by Vice President Joe Biden.

"The costs of a middle-class lifestyle are going up and up, while median income over the last decade has remained relatively flat," said Terrell McSweeny, Domestic Policy Advisor to Mr. Biden. "What we're proposing would make this a substantially larger tax cut for the middle-class than it is right now."