Buoyed by the steep drop in child poverty last year, a group of Democratic lawmakers and progressive advocates are pushing hard to restore at least part of the enhanced child tax credit that stabilized many families’ finances in 2021.
Though its prospects are slim, the coalition’s priority is making the credit more refundable so more of the lowest-income families can qualify, as they did last year thanks to the Democrats’ $1.9 trillion American Rescue Plan’s temporary expansion of the credit. Nearly 19 million kids won’t receive the full $2,000 benefit this year because their parents earn too little, according to a Tax Policy Center estimate.
The lawmakers, led in the Senate by Sherrod Brown of Ohio, Michael Bennet of Colorado and Cory Booker of New Jersey, are hoping to include the provision in the government spending bill that Congress is scrambling to craft before funding expires on December 16. As leverage, they want to tie it to corporate tax breaks that Republicans and businesses support.
The effort, however, faces many hurdles. Supporters have only a few weeks before the GOP takes control of the House, ending any chance of increasing the refundability of the credit. That makes it more imperative for them that Congress agrees to a full-year funding agreement this month, rather than the more-likely scenario of passing a short-term extension into 2023.
Another challenge: At least 10 Republican senators have to sign on for the measure to pass, and that’s assuming it has the support of Democratic Sen. Joe Manchin of West Virginia, who last year torpedoed an extension of the expanded child tax credit, along with much of President Joe Biden’s social spending package.
While Bennet would like the credit to become fully refundable so all low-income families could receive the entire benefit, regardless of their earnings, he said he’s keeping an open mind.
“I think about it as an effort to try to cover as many of the 19 million children who are left out of the current credit as possible and cover them in a meaningful way,” he told CNN.
But he acknowledged that it’s been difficult to negotiate a deal with the GOP because of the uncertainty surrounding the government funding bill.
The child tax credit has long enjoyed bipartisan support, though Republicans have been wary of making it fully refundable because they are concerned it could discourage parents from working.
GOP Sen. Mitt Romney of Utah, a longtime advocate of the child tax credit, crafted an enhanced version earlier this year, along with fellow Republican Sens. Richard Burr of North Carolina and Steve Daines of Montana. Families must have earned $10,000 in the prior year to receive the full benefit, while those making less will receive a credit proportional to their earnings.
More low-income children would be covered under the proposal, which contains other measures that progressive advocates are not as keen on. But the very poorest would still be excluded.
The 2021 enhancement
The American Rescue Plan made three significant changes to the child tax credit for 2021. It increased the maximum credit to $3,600 for children under age 6 and $3,000 for those ages 6 through 17. Heads of households earning up to $112,500 a year and married couples making up to $150,000 were eligible for the full amount.
Also, it made the credit fully refundable so the lowest-income families could qualify. And it sent half the credit to families in monthly installments of up to $300 from July through December last year to help them cover expenses. They could claim the other half on their 2021 tax returns.
More than 36 million families with more than 61 million kids received monthly payments, which totaled more than $93 billion, according to the Internal Revenue Service.
Prior to the expansion, eligible parents received a credit of up to $2,000 for children up to age 17 when they filed their taxes. That is what is in effect for 2022 since the enhancement has expired.
A reduction in child poverty
The expansion lifted 2.1 million children out of poverty in 2021, according to the Census Bureau. It helped drive child poverty to 5.2%, a drop of 46%, according to the bureau’s Supplemental Poverty Measure.
While the monthly payments were being delivered, food insecurity dropped and families said they could more easily afford their household expenses, said Elaine Maag, senior fellow at the Tax Policy Center.
She takes issue with the arguments that the enhanced credit dissuaded parents from working and contributed to inflation.
“It’s a way to actually support work. In some cases, people used the money to pay for child care, for transportation,” she said. “The credit is not large enough to be driving inflation. It is enough money, however, for a very low-income family to be able to offset those effects of inflation.”
For Luz and Rafael Garcia, the $750 monthly installments they received for their three children last year meant that the couple could pay their bills without having to repeatedly check their bank balance to make sure they had enough funds.
The Garcias, who live in Lake Elsinore, California, both work – she as a bilingual para-educator in the local school district, he as a machine operator. But they still live paycheck to paycheck, so getting monthly infusions last year gave them a cushion, especially as gas prices skyrocketed.
“We’re back at having to use our credit card for unexpected expenses, or even everyday expenses,” said Luz Garcia, 42. “I’ve had to use a credit card to pay for gas just to fill up my tank just waiting for that next paycheck.”
There are ways to expand the child tax credit that would provide parents with an incentive to work while not contributing to inflation, said Michael Strain, director of economic policy studies with the right-leaning American Enterprise Institute. An enhancement should focus on low-income families, and the amount of the credit should increase with income until it hits the full benefit.
“That would have poverty reduction effects by giving the credit to households with no earnings, but it would also encourage earnings,” he said. “There are ways to accomplish a lot of people’s goals here.”