By extending income tax cuts for the top two percent of earners, S. 3413-the Senate Republican tax proposal authored by Senator Orrin Hatch (R-UT)-would add nearly $1 trillion more to the deficit than the Senate Democrats' plan. At the same time, S. 3413 would raise taxes on approximately 25 million middle-class households by ending critical tax credits for parents raising children and trying to pay for college.

A summary of the middle-class tax breaks excluded by S. 3413 is provided below.

Background on the American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is a refundable tax credit equal to 100 percent of the first $2,000 of expenses and 25 percent of the remaining expenses up to a maximum credit of $2,500. The AOTC is good for all four years of college and can be used to pay for textbooks and other fixed costs associated with attending college in addition to tuition.  The credit phases out for taxpayers with adjusted gross income over $160,000 for married couples filing jointly ($80,000 for individuals).

History:

The AOTC has a bipartisan history. It is an expansion of the Hope Credit that was passed by President Clinton and the Republican Congress in 1997.  Every Republican voted for the legislation, including the Minority Leader, Ranking Member Hatch and 16 current Republican Senators (Coats, Collins, Enzi, Grassley, Hatch, Hutchison, Inhofe, Kyl, Lugar, Roberts, McCain, McConnell, Murkowski, Sessions, Shelby, Snowe).  The AOTC was originally passed as part of the 2009 ARRA package, and was extended as part of the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010. The extension was passed on a bipartisan vote of 81 - 19 (111^th Congress, Second Session, Vote 276). Thirty-Seven  Republicans voted for the bill including the Minority Leader and Ranking Member Hatch.

Impact:

According to the National Economic Council (NEC), the AOTC can cover the equivalent of 30 percent of the tuition at a typical state university, and the U.S. Treasury estimates it would cover 70 percent of tuition and fees at an average two-year public institution.  Letting the AOTC expire will increase taxes on 11 million families and students by an average of $1,100, according to the new NEC report.

Background on the Expanded Child Tax Credit

The Child Tax Credit (CTC) allows a family to reduce their federal income tax liability by up to $1,000 per child. If the value of the credit exceeds the amount of tax a family owes, the family may be eligible to receive a full or partial refund of the difference. The total amount of their refund is calculated as 15% of earnings that exceed $3,000, up to the maximum amount of the credit. The Republican proposal would increase the refundability threshold to $10,000, indexed for inflation.

History:

The CTC was a bipartisan initiative passed in 1997. It was expanded in size and scope (from $500 - $1,000 and from a credit to a partially refundable credit) in 2001 and 2003 as part of the Bush tax cuts. The ARRA expanded eligibility and access to the credit. The expanded credit was then extended for two years as part of the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010, and is set to expire on December 31, 2012. 

The CTC became law in 1997 through a bipartisan agreement between President Clinton and the Republican Congress, as part of the Taxpayer Relief Act of 1997. It passed on a bipartisan vote of 92 - 8 (105^th Congress, First Session, Vote 211). Every Republican voted for the bill including the Minority Leader, Ranking Member Hatch and 16 sitting Republican Senators.

The 2001 Bush Tax Cuts began a phased-in increase of the credit from $500 - $1,000 and an increase in the refundable portion of the bill.  The 2003 Bush Tax Cuts then accelerated the phase in of the increase in the size and refundability of the credit.  In 2009 the American Recovery and Reinvestment Act reduced the salary threshold for claiming the refundable portion of the credit. Originally, families could claim 15% refundability on income above $10,000. Under ARRA that threshold was reduced to $3,000. If Congress fails to act the size and the refundability of the credit will revert back to 2001 levels.

Impact:

According to the latest estimates by the NEC, letting the expanded CTC expire will increase taxes on 12 million families who will see the size of their CTC credit shrink.  Five million families will no longer be eligible for the credit at all. An additional 35.3 million families will see their taxes increase by an average of $1,000 if the CTC is allowed to lapse altogether.

Background on the Expanded Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is one of the principle antipoverty programs in the country. It was created in the Tax Reduction Act of 1975 and expanded in the bipartisan Tax Reform Act of 1986. The American Recovery and Reinvestment Act (ARRA) expanded access to the credit for families with three or more children and increased the size of the credit for married couples filing jointly. The expanded credit was extended for two years as part of the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010, and is set to expire on December 31, 2012. 

Working class families claim the EITC on income below a certain threshold based on the number of children in their family. The credit is fully refundable and scales up in size based on income and number of children. For the 2011 tax year, the upper limit was $49,078 in income for a married couple with three or more children. The credit was capped at $5,751.

History:

The current EITC was passed in the bipartisan Tax Reform Act of 1986.  Ronald Reagan called it, "the best antipoverty, the best pro-family, the best job creation measure to come out of Congress."  The ARRA  expanded the EITC for families with three or more children and reduced the marriage penalty for families claiming the EITC.

The expanded EITC was extended as part of the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010. It passed on a bipartisan vote of 81 - 19 (111^th Congress, Second Session, Vote 276). 37 Republicans voted for the bill including the Minority Leader and Ranking Member Hatch.  If Congress fails to act the expanded credit will be eliminated and the credit will return to 2008 levels.

Impact:

According to the latest estimates by the NEC, the Republican proposal to let the expanded EITC expire will increase taxes on 6 million families with income below $50,000 will see their taxes go up by an average of $500. And last year, according to the Internal Revenue Service, the EITC lifted 6.6 million Americans out of poverty. Half of them (3.3 million) were children.