The Republican tax plan raises taxes on families who adopt children

“We must continue to remove barriers to adoption whenever we can,” President Donald Trump wrote in a proclamation to declare November National Adoption Month, “so that the love and care of prospective adoptive parents can be directed to children waiting for their permanent homes.”

That sentiment, apparently, did not translate into the House GOP’s tax overhaul bill. The proposal, unveiled Thursday, eliminates the adoption tax credit, which exists to help reduce financial barriers to adoption. The credit essentially helps subsidize costs — sometimes in the tens of thousands for private or international adoptions — for agency and attorney fees, travel, and post-adoption services, such as retrofitting a home for a child with special needs.

But adoption advocates had been bracing for the end of this credit. In December, House Ways and Means Chair Kevin Brady (R-TX), one of the architects of the tax overhaul bill who is also a father to adopted kids, spoke at the Heritage Foundation about tax reform, and he mentioned the adoption tax credit as an example of a provision that could be eliminated. Michaela Sims, a lobbyist and spokesperson for the Save the Adoption Tax Credit working group, said these organizations had feared this since Brady’s speech. But, she told me, “when I saw that in black and white today, it positively took my breath away.”

“It’s stunning to me that this package that is supposed to be pro-family eliminates the adoption tax credit, which is definitely not pro-family,” Sims added. “At the minimum, it’s a tax increase for families who choose to adopt. But at maximum, it could have a chilling effect on adoption.”

Republicans first championed the “pro-family” adoption tax credit

The adoption tax credit was created as part of the Small Business and Job Protection Act of 1996. The legislation won bipartisan support, and President Bill Clinton signed it into law. But the idea for the credit emerged from Republican Newt Gingrich’s 1994 “Contract With America.” The Family Reinforcement Act, as it was named, called for “tax incentives for adoption,” among other proposals.

Republican Susan Molinari, a former representative from Staten Island who sponsored one version of the adoption tax credit in the House, commented to the New York Times in 1996 about Clinton’s backing of this and other social policies: "It's President Clinton starting to get in shape to sound like candidate Clinton again with several conservative pro-family positions staked out."

What is the adoption tax credit exactly?

The tax credit Clinton signed offered up to a $5,000 credit to families, or $6,000 for those who adopted a child with special needs. The credit has gone through a few iterations since then. In 2017, adoptive households were eligible for a maximum credit of $13,570. (The amount now adjusts annually for inflation.) Most foster, private, or international adoptions are eligible — but only for taxpayers below a certain income limit. According to the Tax Policy Center, in 2017 the credit starts phasing out for households earning $203,540 and cuts off completely for those with incomes of $243,540 and higher.

Yet households that are solidly middle and upper middle class tend to benefit the most from this adoption tax credit. According to IRS data from 2014, taxpayers with incomes between $100,000 and $200,000 represented 35 percent of all filers and were awarded about 60 percent of all tax credit dollars.

Tax Policy Center

As that chart above makes clear, lower and lower middle class households often don’t reap the tax incentives of adoption. That’s because the credit is currently nonrefundable, which means if adoptive parents don’t earn enough to owe federal taxes, they aren’t eligible. In 2010 and 2011, a provision in the Affordable Care Act actually made the adoption tax credit refundable, allowing families to get the credit even if they didn’t owe taxes. That all changed, again, with the American Taxpayer Relief Act of 2012, which made the credits permanent (well, “permanent”) but nonrefundable.

Adoption advocates have been fighting to make these credits refundable once again — and lawmakers have introduced bipartisan bills in the House and Senate this year to do just that. Now these groups are battling to save it.

“Penny wise, pound foolish”

The number claiming the adoption tax credit is relatively tiny — just 0.005 percent of all taxpayers in 2014. That same year, the average credit for each taxpayer was $4,802 across all income levels. (The max credit was $13,190 in 2014.) Which means getting rid of the nonrefundable adoption tax credit will likely add up to just a few hundred million dollars in government savings.

Tax Policy Center

And that’s a savings that could end up costing the government in the long term, specifically when it comes to foster care adoptions, said Mary Eschelbach Hansen, an expert in US social policy and economics professor at American University. “My work has shown that a dollar spent to support adoption of kids from US foster care returns $3 in benefits to society,” she said. A large portion of that comes through government savings, she explained — “things like reduced criminal justice, reduced special education that accrue to the children who are removed from, by definition, to insecure foster care to secure families.”

“Ditching that tax credit is penny wise and pound foolish,” Hansen added. “That’s the most essential thing to understand about this proposed change. Every dollar you save in tax credits now is going to cost you dollars somewhere else.”

Richard Barth, the dean of the University of Maryland School of Social Work has done similar research, which showed that kids who remain in foster care saddle the federal and state governments with significantly higher costs — an amount that’s much higher than the relatively modest tax cuts. “Adoptive families are a huge resource,” Barth said, “The tax credit is an investment in attracting them to a long and arduous and sometimes quite expensive role as parents.”

Of course, Hansen emphasized that this applies for kids adopted out of the foster care system, rather than private or international adoptions. Public adoptions are not as costly upfront (and some families are eligible for ongoing assistance), but those kids tend to be older and more likely to have special needs that can strain finances, Hansen explained. The tax credit frees up money for services like special education or occupational therapy — things insurance doesn’t always cover. “It’s not only they’re less likely to be adopted,” Hansen said of getting rid of the credit, “it’s that if they are adopted, they’re less likely to get the services they need if parents don’t have the adoption-year financial support. If you kick that can down the road, it can have bad consequences for the overall success of the adoption.”

The adoption tax credit probably doesn’t go far enough — but getting rid of it altogether would be worse

Bringing kids from foster care to stable homes generally yields a net positive — for the individual kids, and for society at large. Private and international adoptions may work differently, but the idea itself — providing a kid a stable home — should be pretty uncontroversial. And that private adoption process can easily put a financial strain on families, with the cost spiking as high as $30,000 said Josh Kroll, a project coordinator of the Adoption Subsidy Resource Center at the North American Council on Adoptable Children. Some families have to take out loans to meet those costs. “This,” Kroll said of the credit, “would help them repay that quicker.”

Experts say those benefits would be even more substantial if the credit were refundable — which, again, would mean taxpayers could get the full amount of credit, regardless of how much they owe in taxes. The same goes for families who adopt from foster care: According to a 2011 study from the Department of Health and Human Services, about half of those adopting kids from foster care are low-income families — which means they might not be able to take full advantage of the adoption credit in its current form. A refundable credit would also help families adopt more than one child at once, keeping siblings together and the family unit intact.

Which is why advocates, even as they weren’t shocked by the GOP’s latest tax reform plan, were staging a fight to make that credit refundable. Two separate bills were introduced in the Senate and the House this year. The House bill is sponsored by Rep. Diane Black (R-TN), who also now supports the GOP tax plan that would nix the credit entirely.

Schylar Baber, the executive director of Voice for Adoption, said the adoption tax credit has traditionally had “longstanding support from both Republicans and Democrats going way back.” He pointed to the Congressional Coalition of Adoption, which he noted included conservative members.

Rep. Brady told the Washington Post that the adoption tax credit in its current form wasn’t working because families didn’t earn enough to qualify, or didn’t itemize, and that the new plan would give “families more in their paychecks.” The GOP tax overhaul does outline a modest increase to the child tax credit, which would benefit adoptive parents — but only after the fact. Sims said that increase was great but not enough. “We’re talking about kids not having a home and not having a permanent family,” she said. “Last time I checked, that was very pro-family.”

The consequences of cutting the adoption tax credit are still hard to predict — and the bill remains just that. “We don’t know what the final thing will look like. It’s hard to say,” Kroll said. “It will probably make it harder for lower- and middle-income families to adopt, especially privately and internationally. That’s the thing that’s probably the clearest.”

Baber called the elimination of this tax credit a significant loss for the adoption community. “The question is,” he said, “who’s not going to be adopted because of it?”

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