You can earn $100,000 and pay no federal income tax. You say “John, how can I earn $100,000 and pay no federal income tax?” First, earn $100,000. Now, you say, “John, what do I say to the tax man when he comes to my door and says, ‘You have never paid taxes’?” Four simple words, although not so simply said: “I have eight children!”
The Taxpayer Relief Act of 1997 introduced to U.S. taxpayers a credit against income tax of $400 per dependent child. Other acts have raised the credit to the current $1,000 per child. Combined with the $3,500 exemption of taxable income for each family member, this credit can produce an extremely low tax liability. The table below shows the amount of adjusted gross income below which a married couple will pay no federal income tax. There are no accounting tricks involved, no capital gains whatevers or accelerated depreciations, or offshore shelters. Just plain old wage income, the standard deduction (not itemized), and no need to file anything but a 1040A.
|Number of dependent children||Adjusted gross income|
Besides the Child Tax Credit, there is also the Additional Child Tax Credit, the purpose of which is remedy the unfairness that some people can’t receive the full value of the Child Tax Credit only because they already owe no income tax. For example, a married couple with six children and an AGI of $70,000 might owe $3,859 tax before credits. The Child Tax Credit would cover all of that, and then because of the Additional Child Tax Credit, the U.S. Treasury will send the family $2,141, the balance of the $6,000 Child Tax Credit that the family otherwise would have missed out on because its income was too low. This family has a negative federal income tax.
The measures raising the Child Tax Credit to $1,000 were temporary (so as to minimize their projected budgetary impact), and after 2010, the Child Tax Credit will revert to $500 per child unless Congress does something. The politics of that may get interesting if word gets around that a large family (i.e., probably devout Catholic, Mormon, or maybe Evangelical) can pull in a household income well above the national median and yet pay no federal income tax. Senate Majority Leader Harry Reid and Speaker of the House Nancy Pelosi each have five adult children, but on the other hand, Mrs. Pelosi has only seven grandchildren. I would guess that the Child Tax Credit mostly goes to households that did not vote for President Obama. It’s only my conjecture, but below is a graph, not based on any data, showing how I suspect the voting fell.
Now I could be wrong. The relationship may not be linear, though I would be extremely surprised if it were not monotonic, and a negative percentage of the vote may not even be possible. So if your family claimed seven or more dependents on your 2008 taxes, and you cast a ballot for Barack Obama last November, to the first three such commenters, I will mail a copy of our President’s autobiography, Dreams from My Father: A Story of Race and Inheritance. After you get it, send me a photo of your family all enjoying a reading together, and we’ll put it up here at Millennial Star.
At any rate, it will be pretty tough in 2010 for the Democrats to be “for taxes” and “against children” and allow the doubled Child Tax Credit to expire, but its recipients are largely not their supporters, and President Obama could probably get away with saying “I don’t see why we’re giving all this money to people just because they want to raise their own basketball team,” to which his supporters will respond, “Yeah, we shouldn’t be supporting large families.”