Lower Your Taxes Act
- Sponsor
- Rep. Sykes, Emilia Strong [D-OH-13]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 15, 2025
Bottom line
The 'Lower Your Taxes Act' proposes substantial tax relief for low- and middle-income families through expanded credits, funded by increased taxes on corporations and high-income individuals.
What it actually does
This bill significantly expands the Earned Income Tax Credit (EITC) by increasing credit percentages, earned income amounts, and phaseout thresholds, and lowers the minimum age for eligibility. It also establishes a new refundable Child Tax Credit (CTC) with higher monthly advance payments and a separate credit for other dependents, while repealing the existing annual CTC. To offset these costs, the bill eliminates preferential capital gains rates for high-income taxpayers and increases the corporate income tax rate, the corporate stock repurchase tax rate, and the corporate alternative minimum tax rate.
Proponents argue
Supporters argue that this bill is a crucial step towards alleviating poverty and supporting working families by putting more money directly into their pockets. They contend that expanding the EITC and making the CTC fully refundable with monthly payments will provide a stable financial foundation for millions of children and adults, reducing child poverty and stimulating local economies. Proponents also highlight that funding these expansions through increased taxes on corporations and the wealthiest individuals ensures fiscal responsibility and addresses income inequality.
Opponents contend
Opponents might argue that the proposed tax increases on corporations and high-income earners could stifle economic growth, discourage investment, and potentially lead to job losses. They may contend that such significant changes to the tax code could create economic uncertainty and make the U.S. less competitive globally. Critics might also raise concerns about the administrative complexity and potential for fraud associated with a new monthly advance payment system for the child tax credit, as well as the overall impact on the national debt despite the stated intent to reduce it.
The bill is moderately long and contains complex tax code amendments, requiring careful reading. The estimated reading time of 45-60 minutes is reasonable for an informed reader to grasp its core provisions.
Sec. 3(a)-(d), Internal Revenue Code of 1986, Section 32(b)(1) and (2)(A)
Expansion of Earned Income Tax Credit (EITC) Amounts
This provision significantly increases the credit percentages, earned income amounts, and phaseout thresholds for the Earned Income Tax Credit. For example, the credit percentage for taxpayers with three or more qualifying children increases from 45% to 90%, and the maximum earned income amount for this group rises from $8,890 to $27,000. The phaseout amounts are also substantially increased, and for joint returns, the phaseout amount is doubled, making the credit available to more families at higher income levels.
Supporters argue
Supporters argue that these expansions will provide substantial financial relief to working families, lifting many out of poverty and improving economic stability. They contend that the EITC is a proven anti-poverty tool that encourages work, and these changes will make it more effective and reach more people.
Critics contend
Critics may argue that such a significant expansion of the EITC will lead to a substantial increase in federal spending, potentially exacerbating the national debt. They might also raise concerns about the potential for increased administrative burden and fraud with a larger program.
Tradeoffs
The provision balances the goal of poverty reduction and economic support for working families against concerns about federal budget costs and the administrative complexity of a larger program.
Sec. 3(e), Internal Revenue Code of 1986, Section 32(c)(1)(A)(ii)(II)
Lowering EITC Age Limitations
This provision amends the EITC eligibility rules by striking the requirement that an individual must have attained age 25 but not attained age 65. Instead, it states that an individual must have attained age 18. This change expands EITC eligibility to younger working adults without qualifying children.
Sec. 3(f)
Notification of Potential EITC Eligibility
This provision directs the Secretary of the Treasury to establish a program to notify individuals who may be eligible for the Earned Income Tax Credit but either did not claim it on a filed return or did not file a return at all. This notification can be electronic or otherwise and applies to taxable years beginning after 2025.
Sec. 4
Payments for State Non-Refundable Earned Income Tax Credits
This section establishes a federal program to make annual payments to eligible individuals in states with non-refundable state EITCs. The payment would be equal to the amount of the state EITC that would have been refundable if the state credit were not limited by tax liability. States must enter an agreement with the Secretary to provide necessary information. The payments are treated as federal income tax payments, with any overpayment refunded.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24A
Establishment of Monthly Child Tax Credit (CTC)
This section establishes a new monthly child tax credit, replacing the existing annual CTC. Taxpayers would receive a credit of $300 per month for each specified child aged 6 or older, and $350 per month for each specified child under age 6. This credit is fully refundable if the taxpayer has a principal place of abode in the U.S. or Puerto Rico for more than half of any calendar month.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24A(b)(2)
CTC Income Limitations and Inflation Adjustments
The monthly specified child allowance is subject to an initial reduction for modified adjusted gross income (MAGI) exceeding $150,000 for joint filers ($112,500 for others), and a secondary reduction for MAGI exceeding $400,000 for joint filers ($200,000 for others). These income thresholds and the monthly credit amounts are subject to inflation adjustments starting after December 31, 2025, using the CPI for credit amounts and a modified CPI for threshold amounts.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24A(c)
Definition of 'Specified Child' for CTC
A 'specified child' for the monthly CTC must reside with the taxpayer for more than half the month, be younger than the taxpayer, be under age 18, receive uncompensated care from the taxpayer, and not be the taxpayer's spouse. Detailed rules are provided for determining 'care from the taxpayer' based on facts and circumstances (supervision, secure environment, medical care, educational involvement). Tie-breaker rules are established for situations where a child could be claimed by multiple taxpayers, prioritizing parents and then relatives based on residency and adjusted gross income.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24B
Credit for Certain Other Dependents
This section establishes a separate $500 credit for each 'specified dependent' who is not a 'specified child' for the monthly CTC and who meets certain other dependency tests. This credit is non-refundable and phases out for modified adjusted gross income exceeding $400,000 for joint filers ($200,000 for others).
Sec. 5(b), Internal Revenue Code of 1986, New Section 7527B
Establishment of Monthly Advance Child Payments
This section mandates the Secretary of the Treasury to establish a program for making monthly advance payments of the new Child Tax Credit. These payments are estimated based on prior tax year information or information provided by the taxpayer through an online portal. The goal is to provide regular financial support to families throughout the year.
Sec. 5(b), Internal Revenue Code of 1986, New Section 7527B(c)
Presumptive Eligibility for Advance Payments
This provision introduces a concept of 'presumptive eligibility' for advance CTC payments. An individual is treated as a specified child for advance payments only if they are part of a period of presumptive eligibility established by the Secretary. Taxpayers must express a reasonable expectation of continued eligibility. The Secretary is directed to establish procedures for automatic presumptive eligibility for newborns and based on information from other government programs, as well as grace periods for failures to establish eligibility due to hardship.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24A(g) and Sec. 5(b), New Section 7527B(g)
Reconciliation and Recapture of Advance Payments
The bill requires taxpayers to reconcile the advance monthly payments received with the actual credit they are due on their annual tax return. Any aggregate advance payments reduce the final credit amount. In certain circumstances, such as fraud, reckless disregard of rules, understatement of income, or changes in filing status, excess advance payments may be recaptured, meaning the taxpayer owes the difference back to the IRS. Special rules apply for taxpayers moving to other jurisdictions.
Sec. 5(a), Internal Revenue Code of 1986, New Section 24A(e), (f) and Sec. 5(b), New Section 7527B(i)(3), (4)
Anti-Fraud and Identification Requirements for CTC/Advance Payments
The bill includes strict identification requirements, mandating that taxpayers include the name and taxpayer identification number (TIN) of each qualifying child on their return, issued by the due date. No credit is allowed if the taxpayer's TIN was issued after the due date. It also establishes disallowance periods (10 years for fraud, 2 years for reckless disregard) for taxpayers making improper claims and requires taxpayers denied credit to provide additional eligibility information for subsequent years.
Sec. 5(d), Internal Revenue Code of 1986, Section 6103(e)(12)
Disclosure of Information for Advance Payment of Child Tax Credit
This provision amends tax confidentiality rules to allow the Secretary of the Treasury to disclose certain information related to advance CTC payments. For joint filers, information relevant to determining eligibility and payment amounts (e.g., number of children, marital status, income) can be disclosed to either individual. For competing claimants over a specified child, the Secretary can disclose return information from other claimants during the adjudication process, including details about residency and expenditures related to the child.
Sec. 6(a), Internal Revenue Code of 1986, Section 1(h)(1)
Capital Gains Rates Not Applicable to Certain High-Income Taxpayers
This provision amends the Internal Revenue Code to specify that preferential capital gains tax rates will not apply to taxpayers whose taxable income for the year exceeds $1,000,000 (or $500,000 for married individuals filing separately). For these high-income taxpayers, capital gains would be taxed at ordinary income rates. This threshold will be adjusted for inflation after 2026.
Sec. 7(a), Internal Revenue Code of 1986, Section 11(b)
Increase in Corporate Income Tax Rate
This provision increases the corporate income tax rate from 21 percent to 28 percent. This change applies to taxable years beginning after December 31, 2025.
Sec. 7(b), Internal Revenue Code of 1986, Section 4501(a)
Increase in Rate of Tax on Repurchase of Corporate Stock
This provision increases the excise tax on corporate stock repurchases from 1 percent to 4 percent. This change applies to taxable years beginning after December 31, 2025.
Sec. 7(c), Internal Revenue Code of 1986, Section 55(b)(2)(A)(i)
Increase in Corporate Alternative Minimum Tax (AMT) Rate
This provision modifies the corporate alternative minimum tax (AMT) rate structure. Instead of a flat 15% rate, it introduces a tiered structure: 15% of adjusted financial statement income up to $5,000,000,000, and 25% of such income exceeding $5,000,000,000. This change applies to taxable years beginning after December 31, 2025.
This section significantly revises the inflation adjustment mechanism for the Earned Income Tax Credit (EITC). Instead of using the Consumer Price Index (CPI), it introduces a 'GDP adjustment' based on per capita nominal gross domestic product (GDP) for earned income and phaseout amounts, starting after 2026. The excessive investment income threshold retains a CPI adjustment.
Sec. 3(d)(3), Internal Revenue Code of 1986, Section 32(j)
Why it matters:This is standard legislative practice for technical tax code adjustments, but the shift from CPI to GDP for EITC adjustments is a substantive policy choice that could have long-term implications for the credit's real value relative to cost of living.
Case for: Proponents might argue that tying EITC adjustments to GDP better reflects overall economic growth and wage increases, ensuring the credit keeps pace with broader economic prosperity rather than just consumer prices. This could be seen as a more robust measure of economic well-being for low-income workers.
Case against: Critics might contend that using GDP for inflation adjustments could lead to less predictable or potentially slower adjustments compared to CPI, especially if GDP growth lags behind inflation in essential goods and services. They might argue that CPI is a more direct measure of the cost of living for the low-income families the EITC is designed to help.
Estimated impact: This change could significantly alter the long-term real value and cost of the EITC, affecting millions of recipients and billions in federal outlays over decades, depending on the relative growth of GDP and CPI.
This subsection details robust protections for advance child tax credit payments, making them non-transferable, non-assignable, and exempt from execution, levy, attachment, garnishment, or other legal processes, including bankruptcy. It also mandates electronic payments to be uniquely identified and encoded, and provides specific procedures for financial institutions to protect these funds from garnishment orders, including a 'lookback period' and liability protections for good-faith actions.
Sec. 5(b), Internal Revenue Code of 1986, New Section 7527B(h)(5)
Why it matters:These protections are crucial for ensuring that the intended beneficiaries (families with children) actually receive and retain the funds, especially vulnerable families who might be subject to debt collection. While technical, their placement is standard for such payment protections.
Case for: Proponents argue that these strong anti-garnishment and anti-offset provisions are essential to ensure the advance CTC payments serve their intended purpose of providing immediate financial support to families, especially those in precarious financial situations. Without these protections, the funds could be seized by creditors before they can be used for essential needs.
Case against: No specific opposition is typically raised against these types of payment protections, as they are generally seen as safeguarding the intent of social welfare programs. However, some creditors might implicitly oppose them as they limit avenues for debt collection.
Estimated impact: These protections would safeguard billions of dollars in advance CTC payments annually, ensuring they reach the intended recipients and are not diverted to debts, significantly enhancing the program's effectiveness for vulnerable families.