On November 1, President Donald Trump declared November National Adoption Month. On November 2nd, the House Republicans honored the month by proposing the elimination of the federal adoption tax credit as part of their tax reform package supported by Speaker Paul Ryan and President Trump.
In the interest of full disclosure, I should state that my wife and I are in the early stages of the adoption process and would personally benefit from the tax credit. However, I have supported this credit for many years and for the same reasons as most Republicans did.
In backing away from adoption tax credits, the House GOP is abandoning one of the most successful items in the Contract with America that brought the Republicans to power in 1994. Up until Republicans took control of Congress, adoptive parents could claim a $1500 tax deduction. That is, if you were in the 25% bracket, you could reduce your tax bill by $375, which is a drop in the bucket of adoption expenses. Congressional Republicans replaced that with a $5,000 tax credit.
The results of this tax credit for adoptive parents and children across America were terrific. President George W. Bush in 2003 signed a bill doubling the tax credit and indexing it for inflation. In doing so, he described the results of the policy. From 1998-2002, state governments had placed the same number of children as they had in the previous ten years. Now, if Congress repeals the tax credit, it risks reversing much of the gains made since it has been in effect.
Back in the 1990s, the GOP recognized that adoption was in the best interest of not only children and parents but society as a whole. Encouraging adoption was one of the most effective pro-life policies that could be introduced without a federal court challenge. In general, Republicans of the 1990s recognized that the tax code was filled with perverse anti-family incentives and tried to counteract that through fighting the marriage penalty and introducing the adoption tax credit and the child tax credit.
Now pro-family and pro-adoption priorities are out the door. Not only does the House Tax plan come after the adoption tax credit, it goes after workers at the 7% of U.S. companies which reimburse some adoption expenses. Currently, these benefits are not treated as taxable income. Under the House bill, the reimbursements will be taxed, adding yet another financial burden on adoptive families.
This change will likely result in fewer adoptions and more children who remain in the foster care system until they are aging out. This will lead to increased costs to government to maintain an over-burdened foster care system. The consequence of fewer people being able to adopt is likely to also be an increase in the number abortions.
The anti-adoption prevention portions of this bill will lead to human misery, while it will not lead to significant savings. In 2014, the total amount of adoption tax credits cost $355 million. Taxing employer adoption reimbursements would net the government less than $50 million over five years according to the Joint Committee on Taxation. Keep in mind, this is in the context of an overall $1.5 trillion tax cut.
Other more massive targets with more savings opportunities were left relatively unscathed by the reform effort. One example is the Mortgage Deduction protected by the powerful housing and realty industries. The deduction for state and local taxes protects Republicans from high tax states. The biggest losers in the decision to eliminate the adoption tax credit are tens of thousands of children who need homes. These children cannot offer campaign contributions or swing political votes, so they do not matter to the authors of this bill.
In addition to the adoption issue, this plan is not friendly to families with more than one child. House Republicans have touted the doubling of the standard deduction from $6,000 to $12,000, but this is sleight of hand. They are taking away personal exemptions which allow families to claim $4,050 per person for both parents and children. The result is families with more than one child will end up with more income subject to tax under the House plan than they would under the current system. The plan includes an increase in the non-refundable portion of the child tax credit from $600 to $1600 which could partially offset this. However, economist Martin Sullivan warned increasing the credit to $2,000 would be required “to make many families whole.” (i.e., so these families do not end up with a tax increase.) To his credit, Senator Marco Rubio (R-Fl.) has pushed to increase the credit to $2000 but so far to no avail.
In short, the House Republicans have released a tax plan that eliminates the adoption tax credit, taxes employers’ adoption reimbursements, and also hurts larger families. At the same time, Congress continues to fully fund Planned Parenthood. These actions say a lot about Republican priorities.
Thankfully, there is time to stop the anti-family portions of this tax bill as both Houses must approve it. Congress can make needed tax reforms without penalizing adoptive families and all large families. If Congress passes this bill as written, the Republican Party should surrender any claim to being pro-family or pro-life.