Saddleback Civil Forum: on Tax Reform

John McCain: FactCheck: $7,000-per-child tax EXEMPTION, not tax CREDIT

McCain was badly wrong in what he said about the child “tax credit.” The current child tax credit is $1,000, and McCain is not proposing any increase at all. What McCain actually is proposing is a gradual increase in the $3,500 exemption for each dependent child, starting in 2010 and increasing $500 each year until it reaches $7,000 in 2016. The distinction between a tax credit and a tax exemption is both basic and significant. A tax credit is a dollar-for-dollar reduction in the amount of tax owed. An exemption is much less valuable to taxpayers, as it merely reduces the amount of income subject to tax. An exemption is also more valuable to upper-income taxpayers, who fall into higher tax brackets, than to middle- and lower-income taxpayers.