The great thing about Clinton’s elder care proposal nobody’s talking about

Refundable or non-refundable? The importance of that wonky question was driven home recently when Hillary Clinton released a proposal for a new elder care tax credit to help people take care of aging family members. Clinton took some hits from observers who assumed the credit was non-refundable and would unfairly leave behind lower-income families. But there’s good news: it turns out the critics are wrong. Clinton’s campaign has confirmed that her credit is indeed fully refundable.

Why is refundability so important? Because while all workers pay payroll taxes, non-refundable credits do nothing for the majority of Americans in the bottom 60 percent with no income tax liability. In other words, non-refundable credits systematically exclude much of the middle class and almost all of the bottom 40 percent.

{mosads}We know from real-world experience that non-refundable credits are inequitable. The Child and Dependent Care Tax Credit (CDCTC) is a perfect example. Like Clinton’s credit, the CDCTC subsidizes family care. Unlike Clinton’s credit, the CDCTC is non-refundable. And here’s what we know from Tax Policy Center’s analysis of the CDCTC: it’s upside down, providing the most benefit to higher income households, and little to others.

Unfortunately, the CDCTC has plenty of company—big, well-intentioned tax programs that exclude millions of families for no good reason. CFED launched the Turn it Right-Side Up campaign to push back against precisely this kind of inefficient and inequitable upside-down tax subsidy.

Fortunately, instead of proposing an unfair credit aimed at upper-income families, Clinton made her elder care credit fully refundable. This is the smart way to ensure a credit reaches lower-income families. An in-depth analysis of a proposal to convert the non-refundable CDCTC into fully refundable credit found that it “would become more progressive” with 1.6 million (primarily) low- and middle-income households benefiting. Clinton’s credit is thoughtfully designed to help these families too.

With her elder care credit, Clinton has drawn an important line in the sand: if you’re going to subsidize a social activity through the tax code, you need to make sure it doesn’t exclude low- and middle-income families. We should apply this same standard to existing programs, such as the $620 billion in tax subsidies identified by the Turn it Right-Side Up campaign. The vast majority of these fail where Clinton’s credit succeeds.

Howard Gleckman of the Tax Policy Center reports that Clinton has “made it clear that more tax subsidies to help middle-income families are on the way.” As she and others consider how best to serve low- and middle-income Americans, they should shine a bright light on these upside-down tax programs. There is an opportunity here to redeploy billions in wasteful spending while both reducing wealth inequality and helping families who could actually use the help.

In future speeches, debates and campaign white papers, let’s hope we see new ideas to turn these upside-down programs right-side up.

Levin is associate director of Government Affairs for the Corporation for Enterprise Development.