Tax Reform: Amid Criticism, Will GOP Reverse its Proposed Repeal of the Adoption Tax Credit? UPDATE: Yes

Posted: Nov 10, 2017 9:25 AM

UPDATE - It appears as though this issue is going to be resolved, both on the House side and in the Senate (see below).  This is a low-hanging-fruit fix that is worthwhile as a matter of both public relations and public policy.  Here's the new development, followed by my wider case for tax reform (including a look at divergences between each chamber's proposed legislation):

ORIGINAL POST: One of the proposals within House Republicans' tax reform bill that has drawn the loudest outcry -- especially among social conservatives -- is the repeal of an adoption-incentivizing tax credit.  Adoption proponents argue that the credit is a minuscule line item in the federal budget ($300 million annually, or 0.01 percent of the overall budget), yet it does a world of good to help families afford the complex and costly process of adopting children.  Why not keep that tax incentive in place?  The pro-life movement and religious community, who rightly view adoption as a beautiful and life-affirming alternative to abortion, are leading the charge to preserve the tax credit:

These sentiments have been echoed by pro-life legislators, who indicated that they'd fight to restore the tax credit in the final legislation.  For a sense of how this issue can affect families, scroll through this viral tweet storm from a Google developer father of two adopted sons.  Or read this National Review piece by adoptive father David French, begging Republicans to reconsider their position: 

Adoption is hard. If you’ve adopted a child, you know. If your close friends or family members have adopted a child, you know. The most marvelous result — an orphaned, abandoned, or abused child finding a home — is typically preceded by years of uncertainty, red tape, and staggering expense. How much does it cost to adopt?  An Adoptive Families Magazine survey of 1,100 families who adopted children from 2012 to 2013 found that the average family spent $34,093 on independent adoptions and $39,966 if they went through an agency. My family adopted our youngest daughter in 2010, and those numbers match our experience. Even for upper-middle-class families, that’s a staggering amount of money to spend, and the expenses are often concentrated within the span of a few months in a single year. Agency fees, legal fees, travel expenses — they all pile up. So families often seek help. They raise money from family and friends. They appeal to churches. They go into debt. There is, however, one thing that helps these families, and it helps a lot: It’s called the adoption tax credit, a $13,570 non-refundable credit that phases out for truly high-income families. It doesn’t cost the government much — according to the Tax Policy Center, the so-called “tax expenditure” (forgone revenue) from the credit totaled $300 million in 2015 — but it makes adoption affordable for thousands of families. I know. It helped my family immensely when we adopted. It’s helped other adoptive families we know. It can be the financial difference that makes adoption possible.

At the Weekly Standard, John McCormack compares the 'cost' of the adoption tax credit to another major GOP priority within the bill, and points out how adoption actually saves taxpayer dollars that would otherwise be spent on supporting foster children and other kids without permanent homes:

Over 10 years, the House GOP's proposed changes to the estate tax alone (immediately doubling the exempt amount to $11 million and then eliminating it after 2023) will reduce federal revenues by $172 billion—meaning that cutting the inheritance tax will cost 50 times more than keeping the adoption tax credit. Mind you, adoption advocates argue that the adoption tax credit doesn't actually cost taxpayers $3.8 billion in practice. Chuck Johnson, president of the National Council for Adoption, points out that Republicans are always arguing that tax plans should be scored “dynamically” in order to account for the impact tax cuts will have on economic growth—but they have failed to consider the overall impact of the adoption tax credit on state and federal budgets. “What they don't factor in is the total cost to society with a child in foster care,” Johnson tells THE WEEKLY STANDARD. The costs to taxpayers of keeping a child in foster care—health care, food, housing, social workers, and administrators—are far greater than the one-time tax credit adoptive families may receive.

I'm all for phasing out and abolishing the estate/death tax because I don't think it's fair for the government to tax someone throughout their entire life, then exploit their death as another taxable event. This unjust double taxation deprives the deceased party's family of a big chunk of an inheritence they worked hard to leave behind. And despite the class warfare arguments, this doesn't just apply to super-wealthy Wall Street bankers; it applies to some farmers and small business owners, too. I'm also well aware that one of the strategies employed by anti-reform forces is to pick apart every closed loophole, eliminated deduction and canceled tax credit in order to rile up the narrow constituencies that may be negatively impacted by changes.  It's important to recall that on the whole, 70 percent of Americans already do not itemize, opting for the standard deduction.  The Republican plan would roughly double the standard deduction for individuals and families, resulting in that number rising to an estimated 90 percent or higher.  That's what simplification looks like, which will allow tens of millions of families to file their federal income taxes on a single sheet of paper.

Beyond that element of reform, independent studies from non-conservative outfits have confirmed that the House GOP proposal would reduce average taxes across all five income quintiles in America, and that the average household would receive a tax cut of nearly $1,200 per year.  The analyses also confirm that tax reform would boost economic growth and create nearly 1 million new American jobs.  Democratic attacks about the legislation amounting to a tax increase on the middle class have been knocked down as "Four Pinnochios" false by fact-checkers.  In order to lower rates (except for millionaires, who will maintain the same top rate) on families, small businesses and large American businesses (who contend with the highest corporate tax rates in the developed world), some pieces of the existing, byzantine tax code must change.  That will adversely affect a relatively small handful of people, but it will benefit far, far more.  Lower, simpler, flatter taxes.  Stronger growth.  More jobs.  I'm on board with all of that, and the broad strokes of the Republican framework are quite popular.  

I'm also sympathetic to the argument that increasing the annual child tax credit (which the GOP bill does) is a tangible, ongoing benefit to families, including adoptive parents.  The adoption credit is a one-time deal, whereas the child tax credit applies each year.  That's the blanket argument in favor of lowering taxes across the board for everyone while zeroing out various bells and whistles, and it's typically a good one.  But this particular fight isn't worth digging in on, in my view (again, see update).  Microscopic tweaks to other pieces of the puzzle -- or tackling this loophole -- could easily make up for a revenue shortfall created by reinserting the adoption credit.  Plus, adding one more box to a one-page tax return form isn't too much trouble.  For what it's worth, Ramesh Ponnuru reports that the Senate's version of tax reform does not eliminate the adoption credit:

It also differs significantly from the House bill in other ways that started to leak out yesterday.  Now that the Senate plan is public, Ramesh and Ed Morrissey have good pieces explaining the differences, which strike me as significant, but not necessarily irreconcilable in conference.  And that's all part of the plan, a spokeswoman for Speaker Ryan is gently reminding reporters on Twitter:

I'll leave you with this op/ed from a New York Republican begging leadership to maintain the state and local tax deduction (SALT).  She argues that the mechanism provides relief for many taxpayers in tax-happy Democrat-run states like hers.  But why should middle class Americans from "flyover country" be forced to subsidize and incentivize Democrats in big blue states to keep crushing their citizens with high taxes?  New Yorkers and Californians should stop electing Democrats, rather than asking Oklahomans, Indianans, Texans and Floridians to prop up a tax deduction from which coastal blue states they disproportionately benefit.  The House's compromise on this front is more than enough; with all due respect to Rep. Tenney -- who rails against Albany's tax-and-spend addiction -- House Republicans should reject her plea.  The real problem lies in Albany, and with the people who elect state-level representatives who impose high tax burdens.

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