He announced increases in the Child Tax Credit which would be phased in over the next three years. He also announced that the Child Tax Credit would no longer be indexed to inflation but would instead be indexed to inflation less 3%.

The graph below shows the value of Child Benefits, the combined value of Family Allowance, the Child Tax Credit and the Child Tax Deduction for families with two children at different income levels.

The image this graph was meant to convey is that families with incomes below $12,500 are better off. Those between $12,500 and $27,500 are somwhat better off. Those between $27,500 and $42,500 there is no effect and over $42,500 families are worse off.

But it hasn't been adjusted for inflation!!!

For a family at $30,000 the value of the benefits in 1985 appear to be the same as those in 1989. But the 1989 value does not have the same purchasing power as the 1985 value because of inflation. Remember that in 1985, inflation was much higher than current values.

After adjusting for inflation, the purchasing power of the 1989 is only higher than 1985 for families with incomes below $12,500. The Child Tax Credit is about comparable comparing 1985 with 1989 between $12,500 and $25,000. Losers - those worse off in 1989 compared to 1985, start at about $25,000.

This is certainly less generous, there are far more losers than one might guess based on the published graph.

This budget ended full inflation protection for the Child Tax Credit. It ensured then that even for those few families who benefited from this budget that inflation would soon erode that assistance and then they would soon be worse off.

More information on the Child Tax Credit

Richard Shillington
Jan. 31, 1999

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