President Biden’s rhetoric about his new budget proposal suggests it is full of tax relief for working families. For example, one White House fact sheet is headlined “The President’s Budget Cuts Taxes for Working Families and Makes Big Corporations and the Wealthy Pay Their Fair Share.”
Taking from the rich to give more to working (and even non-working) families is a familiar theme in Democrats’ income redistribution playbook. But the Biden administration’s latest tax cut rhetoric is not only vastly overstated, but in fact misleading, as it is designed to mask major federal benefit expansions.
The administration is playing a deceptive game involving “refundable tax credits.” That’s doublespeak for the growing class of benefit checks paid by the IRS to adults who don’t earn enough to owe federal income taxes.
Millions of working parents already collect refundable tax credits each year under programs such as the Child Tax Credit and the Earned Income Tax Credit. Those programs currently require and encourage work by low-income adults over non-work, which is a good thing. But it mocks common sense for the administration to suggest that even bigger benefit payments — with the largest increases flowing to non-working adults — “cuts taxes” for adults who don’t pay federal income taxes in the first place.
Consider the three proposed tax credit expansions touted by the administration in its “President’s Budget Cuts Taxes for Working Families” fact sheet, which involve the Child Tax Credit, the Earned Income Tax Credit, and the Obamacare premium tax credit. In each case, Biden’s budget proposes reviving expansions previously enacted on a temporary basis during the pandemic. But as the administration’s own budget figures show, the three proposals overwhelmingly involve new benefits for those who don’t pay income taxes, not tax cuts for those who do.
Overall, a combined 83 percent of the cost of the three proposals is from benefit expansions which, in budget terminology, constitute “outlays” — that is, the spending of taxpayer money. That’s the same budget category that includes welfare and other means-tested benefit payments. A mere 17 percent of the cost involves relief for those who pay taxes.
The combined benefit expansions ($618 billion) outweigh the tax cuts ($127 billion) by almost $500 billion. The proposed expansions of the Child and Earned Income Tax Credits are especially benefit-heavy, with benefit expansions proposed for those two key programs outweighing tax cuts by a ratio of more than 10 to 1.
You would never know this from the administration’s tax-cut-focused rhetoric. For example, the administration’s fact sheet suggests that its Earned Income Tax Credit policy “cuts taxes for 19 million Americans,” ignoring that 88 percent of that “tax cut” is really benefit increases. Overall, the White House claims its plan would “cut taxes for middle- and low-income Americans by $765 billion over 10 years,” counting at least $618 billion in benefit increases as tax cuts.
The fact that such benefits are paid by the IRS doesn’t change the fact that they are outlays. Indeed, when Democrats temporarily expanded the Child Tax Credit in 2021 to provide payments to non-workers for the first time, the resulting deluge of new benefit payouts turned the IRS into America’s number one welfare agency. The president’s budget would revive that temporary expansion, arguing that is part of a vast “tax cut for working families.” Never mind that tax relief constitutes just 7 percent of the proposed Child Tax Credit expansion’s costs.
Biden is not the first to play this game. Congress often uses the same illogic to describe legislation. In just the latest example, the House in January passed H.R. 7024, the “Tax Relief for American Families and Workers Act,” which revives business tax relief policies but also includes its own benefit-heavy Child Tax Credit expansion. According to the nonpartisan Joint Committee on Taxation, the Child Tax Credit policy in that bill would result in over $30 billion in benefit expansions compared with less than $3 billion in tax relief. Yet Rep. Richie Neal (D-Mass.), the lead Democrat on the tax-writing Ways and Means Committee, nonetheless suggests the bill “delivers vital tax relief to working families,” ignoring that any such relief is swamped by benefit hikes.
Biden would have you believe that the even greater benefit increases he proposes in his budget — twenty times the level in that House-passed bill—are really tax cuts. Unsurprisingly, some in the media have swallowed this rhetoric whole, with CBS News headlining that the “Biden budget would cut taxes for millions.” But the facts—including the fine print of the administration’s own budget documents—contradict that faulty rhetoric.
Matt Weidinger is a senior fellow and Rowe Scholar in opportunity and mobility studies at the American Enterprise Institute.