“If we measure success not just by how well most children do, but by how poorly some fare, America falls far short” —National Commission on Children (1991)
According to the Center for American Progress, nearly 11 million children live in poverty in the United States. This equates to 1 in 7 kids, and roughly one-third of all people living in poverty in the country. Child poverty in the United States is higher than in most advanced countries.
The Child Tax Credit (CTC) was created in 1997. Since that time, it has grown, and with changes proposed in the coronavirus relief bill currently being debated in Congress, it is set to become one of the biggest tax breaks available.
The Child Tax Credit is the second most-widely claimed individual tax break, following the deduction for charitable contributions.
It has a long history of bipartisan support, though each party tends to emphasize different reasons to support it. Republicans tend to emphasize the credit as a mechanism to reduce the tax burden on families. Democrats tend to emphasize the way it helps low-income earners, whether they make enough money to pay income tax.
Both President Joe Biden and Senator Mitt Romney have proposed changes to the Child Tax Credit recently – changes aimed at expanding the benefit and eliminating many of its restrictions. Their current proposals, unlike other forms of government aid, do not require a criteria-based measure of need. The effect would be something like a near-universal basic income for children.
Currently around 90% of households with children qualify for the tax credit, however, many do not receive the full $2,000 benefit because they ultimately do not owe enough tax and only a portion of the credit is refundable. The refundable portion is currently capped at $1,400. Additionally, based on current law, around 6.7 million children live in families too poor to claim the tax credit. Mr. Biden’s and Mr. Romney’s proposals would address these disparities.
President Biden’s proposal, which is included in the coronavirus relief bill, would increase the tax credit from $2,000 to $3,600 per child under 6 and $3,000 per child ages 6 to 17.
It would also make the credit fully refundable. This would mean even a parent with no income could receive the full amount. Under Biden’s plan the credit would begin to phase out for individuals earning over $75,000 per year and couples earning $150,000. The remainder of the credit would be phased out at incomes of $200,000 per year for individuals and $400,000 married couples, as it is under current law.
Senator Romney’s proposal would raise the credit for children under 6 even higher, to $4,200 per child, with a credit of $3,000 for children ages 6 to 17. His proposed plan would start phasing out the full amount at $200,000 per year for individuals and $400,000 for married couples.
One significant thing both plans have in common is that they would pay the credit each month, instead of once per year when recipients file their tax returns.
The two plans differ on which government agency would administer the benefit, with Biden favoring the Internal Revenue Service and Romney the Social Security Administration. Either proposal would potentially send almost every parent $250 or more per month.
Sending monthly payments to families would provide timely and much-needed financial relief and would help smooth out household income streams which have been made volatile by the pandemic. This infusion of money would also help to speed the economic recovery as low-income families are most likely to spend additional cash by purchasing goods and services, generating additional economic activity.
The proposed changes to the CTC contained within the coronavirus relief package would be effective for 2021. For their benefits to be long-term, Congress would need to enact additional legislation and would need to identify permanent funding sources. History has shown this is one program both parties support.
The Child Tax Credit is one way that policy can have a rapid impact on poverty in America. According to Columbia University’s Center on Poverty and Social Policy, the CTC expansions would reduce child poverty in the United States by 45%, lifting nearly 5 million children out of poverty.