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Dems aim to increase, expand child tax credit, but some Republicans object

Rep. Richard Neal, chairman of the House Ways and Means Committee, speaks at a briefing in Boston, Monday, Jan. 8, 2021. (Pool)
Rep. Richard Neal, chairman of the House Ways and Means Committee, speaks at a briefing in Boston, Monday, Jan. 8, 2021. (Pool)
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As American families grapple with the economic challenges imposed by the coronavirus pandemic, Democrats and at least one prominent Republican are seeking ways to ease the burden on parents by transforming the child tax credit into a monthly allowance that experts say could radically reduce child poverty in the United States.

Under a plan expected to be unveiled by House Democratic leaders Monday, families would begin receiving monthly payments from the Internal Revenue Service in July totaling $3,600 over 12 months for each child under 6 and $3,000 for each child between 6 and 17. The payments would gradually phase out for individual taxpayers who earned more than $75,000 in 2020 and joint filers who earned more than $150,000.

“The pandemic is driving families deeper and deeper into poverty, and it’s devastating. This money is going to be the difference in a roof over someone’s head or food on their table,” House Ways and Means Committee Chairman Richard Neal, D-Mass., said in a statement. “This is how the tax code is supposed to work for those who need it most.”

The $250 to $300 monthly payments would replace an existing $2,000 annual child tax credit and expand eligibility to lower-income families that do not currently qualify by making the credit fully refundable. The initial proposal would cover only one year of payments, but Democrats have vowed to fight to extend the increased credit at a cost of more than $120 billion a year.

"Children and families must be able to count on this benefit long after the end of this pandemic," Rep. Rosa DeLauro, D-Conn., cosponsor of the American Family Act, which would make the enhanced credit permanent, said in a statement Monday.

Democrats have acknowledged the plan could present logistical challenges for the cash-strapped IRS, and their proposal includes increased funding to implement the new benefit, according to The Washington Post. It allows flexibility for Treasury Secretary Janet Yellen to change the payment structure if monthly payouts are not feasible.

President Joe Biden had proposed increasing the child tax credit as part of his $1.9 trillion American Rescue Plan, but he left the details up to Congress. As Democrats race to turn his framework into legislation, they also hope to claw back the longstanding work requirements that have excluded those without sufficient taxable income from receiving the credit since it was created in 1997.

A recent report by the Center on Poverty and Social Policy at Columbia University estimated that President Biden’s economic rescue plan—including a fully refundable enhanced child tax credit—could reduce child poverty by 51% in 2021 and cut overall poverty by nearly 30%. It did not break out the impact of specific provisions.

The Center on Budget and Policy Priorities calculated expanding and increasing the child tax credit alone could lift 10 million children above or closer to the poverty line, including 2.3 million Black children and 4.1 million Latinos. There are about 27 million children in the U.S. whose families do not earn enough to qualify for the full credit under current laws.

“It will likely go a long way in reducing child poverty,” said Katherine Michelmore, a senior research associate at the Center for Policy Research at Syracuse University.

U.S. child poverty rates have improved in recent years, but the share of American children living in poverty is still far higher than in many other developed nations. According to a 2019 report published by the National Academies of Sciences, Engineering, and Medicine, child poverty costs the U.S. between $800 billion and $1.1 trillion annually in lost adult productivity, increased crime, and health care expenditures.

Robert Plotnick, professor emeritus and former director of the Center for Studies in Demography and Ecology at the University of Washington, said increasing and expanding child tax credits is “probably the most effective, simplest thing you could do” to address child poverty, potentially bringing the U.S. more in line with other high-income countries.

As part of Democrats’ planned $1.9 trillion coronavirus relief package, the enhanced child tax credit legislation appears unlikely to garner significant Republican backing. However, the idea of increasing tax credits for children is gaining some bipartisan momentum.

In the 2017 Tax Cuts and Jobs Act, Republicans raised the value of the child credit and made a larger share of it refundable, but Sen. Mitt Romney, R-Utah, has proposed going even further. Last week, he unveiled the Family Security Act aimed at “streamlining” federal family policies and creating a universal monthly child benefit.

Under Romney’s proposal, parents would receive $4,200 per year for every child under 6 and $3,000 for children age 6 to 17 through monthly payments distributed by the Social Security Administration. The maximum monthly benefit would be capped at $1,250 per family, and the benefit would phase out above the current income thresholds for the child tax credit, $200,000 for single filers and $400,000 for couples.

Unlike Democrats, Romney would scale back some other social safety net programs to offset the cost of the enhanced credit. His plan would eliminate the Temporary Assistance for Needy Families block grant, the Child and Dependent Care Tax Credit, and the “head of household” tax filing status, as well as reforming the Earned Income Tax Credit and getting rid of the State and Local Tax Deduction.

“Essentially, his approach is to make existing subsidies for children much more efficient, much broader, and move away from the piecemeal type of programs we currently have,” said Michael Tanner, a senior fellow at the Cato Institute.

According to Romney, his plan would support families, promote marriage, and provide equal treatment to working and stay-at-home parents. He also argued the programs and credits his allowance would replace are outdated and overly complicated.

“American families are facing greater financial strain, worsened by the COVID-19 pandemic, and marriage and birth rates are at an all-time low,” Romney said last week. “On top of that, we have not comprehensively reformed our family support system in nearly three decades, and our changing economy has left millions of families behind.”

The Niskanen Center, a right-leaning think tank that helped craft Romney’s legislation, estimated the increased child credits would reduce child poverty by about 32% and lift 1.2 million children out of “deep poverty.” The organization’s analysis also found that the proposal would be revenue-neutral through 2025.

Other conservatives have raised concerns that a universal allowance would discourage work and marriage in certain circumstances. Scott Winship, director of poverty studies at the American Enterprise Institute, dismissed it as “playing Russian roulette with low-income families’ wellbeing.”

Sens. Marco Rubio, R-Fla., and Mike Lee, R-Utah, who successfully championed the increased child tax credit as part of the 2017 tax bill, bluntly rejected Romney’s legislation. However, they suggested they could support a more generous temporary boost to the credit than Democrats have proposed, up to $4,500 for young children and $3,500 for older children.

“We do not support turning the Child Tax Credit into what has been called a ‘child allowance,’ paid out as a universal basic income to all parents. That is not tax relief for working parents; it is welfare assistance,” Rubio and Lee said in a joint statement. “An essential part of being pro-family is being pro-work. Congress should expand the Child Tax Credit without undercutting the responsibility of parents to work to provide for their families.”

Democrats and progressive groups have been more receptive, but some have balked at eliminating existing welfare programs to pay for the enhanced child credit. White House Chief of Staff Ron Klain described Romney’s proposal on Twitter as “an encouraging sign that bipartisan action to reduce child poverty IS possible,” and The Washington Post reported Biden and Romney staffers had discussions about the plan after it was released.

“Expanding the child tax credit is one of the most powerful ways we can reduce child poverty and supercharge economic mobility,” Alexandra Cawthorne Gaines, vice president of the Poverty to Prosperity program at the Center for American Progress, said in a statement. “It is most effective when accompanied by existing anti-poverty programs, including Temporary Assistance for Needy Families (TANF) and nutrition assistance.”

Matt Bruenig of the left-leaning People’s Policy Project argued Romney’s proposal is better than the Democratic plan because it provides larger benefits and phases out at a higher income level, though he criticized the income caps and maximum annual credit. Using the Social Security Administration instead of the IRS to make payments could also reach more low-income families.

Bruenig defended some of Romney’s proposed offsets as simplifying complex and poorly targeted programs, but he noted some current recipients of the Earned Income Tax Credit could be worse off under the plan. He dismissed concerns about eliminating already-underfunded federal TANF grants, adding that the state funding that provides most of the support for the program would be untouched.

“TANF is a completely hollowed-out program that has been on a decades-long death march that nobody has had any success reversing,” he wrote in a blog post.

Experts on poverty and welfare policy are skeptical of dire predictions that expanding and increasing child tax credits would keep low-income parents from working. Plotnick said such warnings are typical when increased support for low-income households is proposed, but the actual effects are often minor.

“The negative impact on work is dwarfed by the positive impact on child poverty,” he said.

According to Tanner, research indicates large federal welfare benefits can lead some to leave the workforce, but a few hundred dollars a month per child is unlikely to change behavior on a significant scale. However, there might be some secondary earners who choose to stay home with children while primary earners continue working.

“Very few people are going to stop working for the sake of $3,500,” Tanner said.

A 2018 report in the Russell Sage Foundation Journal of the Social Sciences estimated that replacing existing child tax credits and deductions with a universal child allowance similar to what Romney has proposed could cut child poverty by 40% and eliminate extreme child poverty entirely. It would also reduce some of the inequities and social stigmas associated with current welfare programs.

“A stable source of cash income could reduce material hardship among families by increasing the overall dependable cash resources available to cover core expenses,” the report stated. “Moreover, a growing body of evidence from rigorous studies suggests that income transfers—even relatively small ones—can improve child health and development.”

Even with more than $3 trillion in federal funds already spent on pandemic stimulus programs and Biden eying trillions more in recovery spending, experts say the cost of increasing and expanding child tax credits would be a worthwhile investment. Pulling children out of poverty now could save the government money in the long run because it increases the likelihood they will not need government assistance when they grow up.

“A program that is geared toward giving families money to reduce child poverty is money well spent,” Michelmore said.

Despite bipartisan support for increasing child tax credits in theory, the political path forward for legislation is complicated. Senate Democrats can pass a coronavirus relief bill without Republican votes through reconciliation, but the overall package would need to be revenue-neutral to comply with parliamentary rules.

A $600 billion counterproposal to Biden’s $1.9 trillion relief package offered by Romney and nine other GOP senators omitted the increased child tax credit. The lawmakers indicated they would be open to negotiating a higher price tag, but it was not clear how many of them would back the enhanced child credit.

Biden and Democratic leaders appear ready to proceed without Republican support, so at least a temporary increase of child tax credits is likely to pass in the coming weeks. A more lasting change would require separate, standalone legislation and some Republican votes, and given Rubio and Lee’s opposition to Romney’s plan, that could still be a longshot.

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“It’s interesting that, on my proposal with the child tax credit, that Gov. Romney wants to get it the same corner of the room and I want to get to the same corner of the room,” House Ways and Means Chairman Neal told reporters Monday. “We’ve just got to figure out how to get there.”

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