The Biden administration moved to help middle-income families with an expanded child tax credit included in the $1.9 trillion COVID-19 relief package that passed Congress in March.
The American Rescue Plan increased the child tax credit from $2,000 to $3,600 per child under age six and $3,000 per child between the ages of 6 and 17 for one year. The credit will also be 100% refundable for one year. Half of the credit would be paid directly to families starting in July 2021, rather than being solely a credit applied to a family’s annual tax bill. (Although the American Rescue Plan detailed monthly payments, in a March guidance, the Internal Revenue Service said it could not commit to monthly disbursements and that the payments would arrive “periodically.”)
Single parents with an adjusted gross income (AGI) of $75,000 or less and couples with AGI of $150,000 or less may be eligible for the expanded tax credit. Single parents with an AGI of $200,000 or less ($400,000 or less for couples) may still qualify for the standard $2,000 credit. According to an analysis from the Tax Policy Center, a collaboration between the Urban Institute and the Brookings Institution, more than 90% of families with children under the age of 18 will receive some benefit from the new law.
The expanded tax credit comes after many middle class families experienced a financial hit from the COVID-19 pandemic, with some parents forced to leave jobs or reduce work hours to care for their children who could not attend school. Advocates pointed to research that the expanded credit could reduce child poverty in the U.S. by 45% and have called for the credits to be made permanent.
“It is a new lifeline to the middle class, and it cuts child poverty nearly in half,” Rep. Rosa DeLauro (D-Conn.), chair of the House Appropriations Committee, said in a statement. “Franklin Roosevelt lifted seniors out of poverty, 90% of them with Social Security, and with the stroke of a pen, President Biden is going to lift millions and millions of children out of poverty in this country.”
Some Republicans, meanwhile, objected to what they said was an expansion of the welfare state that could disincentivize some parents from working.
“The feeling is we win the battle against child poverty, but we lose the war in the long run because we’ve created incentives that make it tougher to reduce poverty,” Scott Winship, director of poverty studies at the conservative think tank American Enterprise Institute, told the Associated Press.
Republican Sens. Mike Lee of Utah and Marco Rubio of Florida, who worked to expand the child tax credit in 2017, stated that while they agree with further increasing the credit as part of the COVID relief bill, they did not support the idea of paying the money to parents as a type of universal basic income. “That is not tax relief for working parents; it is welfare assistance,” the senators said in a joint statement.
The two have said they would be in favor of a credit of up to $4,500 but that parents would need to be working to be eligible. “An essential part of being pro-family is being pro-work,” Lee and Rubio said in a joint statement. “Congress should expand the child tax credit without undercutting the responsibility of parents to work to provide for their families.”
Sen. Mitt Romney (R-Utah) has pitched an approach with similar credits to those included in the American Rescue Plan that would be paid for by eliminating other assistance for families. In a statement, Romney’s office said his Family Security Act would create “a new national commitment to American families by modernizing and streamlining antiquated federal policies into a monthly cash benefit.”
“If enacted, low-income families would no longer have to choose between a bigger paycheck or eligibility for support,” the statement said. “This plan would immediately lift nearly 3 million children out of poverty, while providing a bridge to the middle class — without adding a dime to the federal deficit.”
President Joe Biden has said he supports making the expanded child tax credit permanent, and Democratic leadership in Congress has promised to push for it. That could lead to a political showdown over government spending with Republicans in the run-up to the 2022 midterm elections. On the other hand, Republicans may have trouble arguing against reauthorizing a benefit that is helping middle- and low-income families by delivering money to them, especially as they continue to recover from the financial impact of the pandemic.
For more background, see the January 2018 issue of Congressional Digest on “Tax Reform.”
