Revenues
Lower the Investment Income Limit for the Earned Income Tax Credit and Extend That Limit to the Refundable Portion of the Child Tax Credit
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Revenues | * | 0.8 | 0.8 | 0.8 | 0.7 | 0.7 | 0.7 | 0.6 | 0.7 | 0.7 | 3.1 | 6.3 |
Source: Staff of the Joint Committee on Taxation.
Notes: This option would take effect in January 2015. Estimates are relative to CBO’s April 2014 baseline projections. The estimates represent the change in the overall budget balance that would result from the sum of changes to revenues and outlays.
* = between zero and $50 million.
Low- and moderate-income people are eligible for certain refundable tax credits under the individual income tax if they meet specified criteria. If the amount of a refundable tax credit exceeds a taxpayer’s tax liability before that credit is applied, the government pays the excess to that person. Two refundable tax credits are available only to workers: the earned income tax credit (EITC) and the refundable portion of the child tax credit (referred to in the tax code as the additional child tax credit). Eligibility for the EITC is restricted to filers with investment income that is $3,350 or less in calendar year 2014. Investment income includes interest (counting tax-exempt interest), dividends, capital gains, royalties and rents from personal property, and returns from passive activities (business pursuits in which the person is not actively involved). The limitation on investment income is adjusted, or indexed, for inflation each year.
This option would lower the threshold for the EITC investment income test from $3,350 to $1,650. As under current law, that threshold would be indexed for inflation. Moreover, the option would extend that limitation to the refundable portion of the child tax credit.