commentary by Gary Palmer

Unless the U.S. Senate acts to extend or make permanent the Bush tax cuts before the end of the year, Alabama families could see a significant increase in their federal income taxes next year.

The $1,000 Child Tax Credit and the Marriage Penalty Relief are among the major provisions of the Bush tax cuts that are set to expire at the end of this year.

The expiration of these two pro-family tax relief provisions will result in a tax increase for millions of American families with children, depriving them of essential dollars they have been using to meet family needs.

As part of the first Bush tax cut initiative in 2001, Congress passed a bill that would have gradually raised the Child Tax Credit from $500 per child to $1,000 per child by the year 2010.

After the unprecedented gains in Congress by the Republicans in the 2002 mid-term elections, as part of his 2003 tax cut plan Bush pushed Congress to make the $1,000 per child tax credit effective immediately. Congress passed the measure, but made it effective for only 2003 and 2004.

Unless the Child Tax Credit is extended or made permanent, the credit will be reduced to $700 per child on January 1, 2005.

According to the Tax Foundation in Washington, D.C., the loss of $300 per child in tax credits will mean an average tax increase of $448 in 2005 for 22.6 million families.

In 2003, the $1,000 per child tax credit resulted in 5.8 million families having no federal income tax liability at all.

If the credit is reduced, 2.5 million of those families will once again be paying federal income taxes.

Moreover, the reduction in the Child Tax Credit will be particularly hard on lower- income families.

According to the Tax Foundation report, some families with annual earnings between $10,000 and $15,000 would have an average tax increase of $306.

In fact, 78% of the taxpayers that will be affected earn less than $75,000 in total income.

As with the loss of the Child Tax Credit, it will be lower-income families that will suffer the most if the Marriage Penalty Relief is allowed to expire.

The removal of the so-called marriage penalty, the additional taxes a married couple filing jointly had been required to pay when compared to an unmarried couple filing separately, was one of the key provisions of the 2001 Bush tax cut proposal.

However, in 2001 Congress only authorized this tax relief for married couples to begin in 2005 and slowly phase in until the cuts took full effect in 2009.

In 2003, however, Congress acted to go ahead and give married couples the full amount of tax relief, but only for 2003 and 2004.

On January 1, 2005, the marriage penalty will return which will result in an average tax increase of $369 for 30 million couples.

The Tax Foundation reports that over half of the married couples (53%) that will be adversely affected by the return of the marriage penalty have a combined income of less than $75,000 and 10% have combined annual incomes between $10,000 and $25,000.

In fact, couples with combined incomes as low as between $15,000 and $20,000 will see their taxes increased by $116.

Because 65 percent of the couples affected are between ages 25 and 54, the prime child rearing years, the return of the marriage penalty will create an additional financial hardship on couples with children.

The good news is that the U.S. House of Representatives has already passed legislation that makes all of the Bush tax cuts permanent.

But that legislation was sent to the U.S. Senate where it has languished throughout the summer as a major piece of unfinished business.

Because of opposition from liberal senators, including some liberal Republicans, it is unlikely that the Senate will pass the House bill that makes the Bush tax cuts permanent.

However, because this is an election year, there is a good chance that the Senate will extend the provisions of the tax cuts for another five years.

Extending the Child Tax Credit and the Marriage Penalty Relief for the next five years would only reduce federal revenues by about $20 billion per year, or about $100 billion over the five years.

In the context of federal revenue, it is barely a drop in the proverbial bucket.

The real choice the members of the U.S. Senate must make now is between taking hard-earned dollars out of the family budgets of married couples with children to spend on expanding the federal government, or letting these families keep their money to meet their pressing needs.

Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.