What Now for the Child Tax Credit?
Expanded payments passed through the American Rescue Plan are ending. Can Congress come up with a plan that works for members of both parties?
For Jeremy and Erin Calcara, parents to five children, the expansion of the child tax credit under the American Rescue Plan has made it easier to pay the bills.
The family lives in Lincoln, Nebraska, where Jeremy works for the state government as a training specialist, and Erin works part-time for an education research project at the University of Nebraska.
“We’re blessed to be able to pay our bills every month, but there isn’t usually much left in the bank account once the bills have been paid,” Jeremy Calcara told The Dispatch. “Especially in these last few months of the year, it’s pretty common for us to be a month or two behind on bills, just paying the minimum possible to try to make it until we get our tax return to get everything back to zero. We haven’t had that problem yet, which has been a nice break from stress.”
The extra money hitting their bank account each month since July has also allowed them to “say yes to getting pizza or picking up tacos after a long day in a way that we usually don’t have,” Calcara added. They also were able to spring for tickets to a couple of Royals games and attend some conferences. And when their dishwasher broke, they were able to pay to have a new one installed.
But the Calcaras can’t count on that aid any longer—nor can millions of other families: The last expanded child tax credit payment hit Americans’ bank accounts December 15. While Democrats hoped to pass a temporary continuation of the policy through the $1.7 trillion Build Back Better Act, Sen. Joe Manchin’s December 19 announcement that he could not support the legislation effectively killed those hopes.
The child tax credit has been around since 1997 but worked differently before it was expanded under the ARP. Parents could get up to $2,000 per eligible child up to age 16, with reduced amounts for those with higher incomes. As opposed to seeing the credit meted out over time, parents would get one single refund at tax time. That amount was partially refundable; families who owed less in taxes than the amount they were to receive in credit could still get $1,400 per child.
The American Rescue Plan not only made the CTC fully refundable, it provided for checks to be sent to eligible families, and the credit was expanded from $2,000 to $3,000 annually per child, with a $600 bonus for kids under 6.
About 35 million families eligible for monthly payments received at least $300 monthly for each child under age 6, and up to $250 monthly for children ages 6 through 17 this year, according to the IRS.
The House-passed Build Back Better bill would have continued the child tax credit payments, but just for a year. It kept the amounts the same—$3600 for children under 6 and $3000 for children ages 6 to 17—and kept the child tax credit fully refundable: Families could get the credit regardless of whether they earned income that year.
Democrats were likely banking on the popularity of the program to create political pressure to not let the credit expire.
The Congressional Budget Office found that the CTC would have offset most of the revenue raised in the Build Back Better. The CBO said that expanding the program for one year would cost $185 billion. If it was passed for a decade, which lawmakers have said is the goal, it would cost about $1.6 trillion.
The child tax credit is not a purely partisan issue. Under the Trump administration, Republicans doubled the child tax credit through the Tax Cuts and Jobs Act. Lawmakers on both sides of the aisle believe the child tax credit should be expanded permanently, but it’s unclear if that will generate enough support to pass actual legislation. Aside from the debate over the actual cost of the program, most of the criticism has been tied to the concern that the credit should be tied to work, something argued by Oren Cass, executive director of the conservative American Compass, and Sen. Marco Rubio.
Democrats and some Republicans, though, think that the work requirement would hurt poor families. Sen. Mitt Romney introduced a plan earlier this year that The Morning Dispatch covered at the time:
The proposal is relatively simple, as far as federal welfare programs go. Parents would receive monthly cash benefits—$350 for children ages zero to five, $250 for children ages six to 17—and they would become eligible for them four months prior to a child’s due date. A family’s total annual benefit would be capped at $15,000, meaning the program’s diminishing returns begin to kick in after four or five children. Payouts would begin to slowly phase out at set income thresholds: $200,000 for single-filers, and $400,000 for joint-filers.
According to an analysis from the centrist Niskanen Center, the Family Security Act would reduce the child poverty rate in America by a third (2.8 million children) and cut the deep child poverty rate in half (1.2 million).
Importantly, the policy is designed to maximize uptake and minimize the number of people who slip through the bureaucratic cracks. The monthly benefits would be distributed through the Social Security Administration (SSA) rather than the IRS. The SSA is already equipped to deliver monthly payments, and many low-income families don’t file taxes and have no existing relationship with the IRS. To avoid unnecessary complexity, the monthly cash would be sent to all families—regardless of income—and those above the aforementioned income thresholds would reconcile the difference in their annual tax return. There are no limits or restrictions on how the money could be spent.
With the Build Back Better on life support, Romney re-upped his proposal on December 20: In a tweet, he said the White House “has an opportunity to actually work with Republicans [and] Democrats on lasting, fiscally-responsible family policy.”
Matt Bruenig with the progressive People’s Policy Project praised the plan, calling it “nearly twice as generous as the current [child tax credit] over the course of a child’s lifetime.”
The Romney plan would consolidate other federal programs such as the child and dependent care tax credit and the Temporary Assistance for Needy Families (TANF) program into one monthly payment, and it would have eliminated the head-of-household tax filing status and the state and local tax deduction. These measures would make it deficit-neutral and allow it to pass under budget reconciliation rules. It would also reform eligibility for the Supplemental Nutrition Assistance Program and the earned income tax credit.
Angela Rachidi, a senior fellow on poverty studies at the conservative American Enterprise Institute, said she thinks a proposal without a work requirement will not make headway on the right: “Congress could get Republican support for a tax credit that was targeted to low or moderate income families and was connected to work. … The tax credit should be for working families, [and] it should be based on people paying into the tax system.”
Rachidi worked in the welfare system for almost a decade, as the deputy commissioner for policy research for New York City’s department of social services. “I understand the desire to make our government programs as simple and with as little bureaucracy as possible. But the downside is that you’re talking about extremely vulnerable, oftentimes dysfunctional families,” Rachidi said. “If you just start sending money to these households, with no connection to a social service agency … there’s potential for some downsides especially for the children.”
The concern of doing away with the work component is not just coming from the right. According to the Huffington Post, Manchin said in a radio interview he believes the child tax credit payments should go to working parents only. He also criticized the payments on the grounds that they may not go where is most needed: “Make sure the money follows the child so if the grandparent is raising the child, they’re getting the money and not the parent,” the West Virginia lawmaker said.
Currently, grandparents who are primary caregivers can receive the payments only if the child lives with them for more than half a year.
A Census Bureau survey of about 300,000 adults found that about 4 in 10 households used the first three payments to reduce debt. The survey also found that most families used the CTC on household expenses such as groceries, rent, mortgage, utilities, and—during the school year—school supplies. One in 4 families used the credit to pay for child care costs.
Parents interviewed by The Dispatch had a wide range of responses to what they used the credit for and how it impacted their families. Some said that the monthly payments disappearing in 2022 would be a “gut punch” to poor and middle-income families, while others said they did not need the tax credit and worried it might have adverse effects on inflation.
Brandon and Melissa Odell live in an Atlanta suburb with their two daughters, Evelyn and Ellie.
Brandon works as a health care actuary. Melissa taught first grade until their youngest was born with special needs, when she left her job. Ellie, now 5 years old, has Down syndrome and has undergone several open-heart surgeries.
The family has qualified for the child tax credit since Ellie’s birth, when they transitioned to one income. The $550 they’ve received every month under the ARP is about $200 more than what they were receiving before.
“It's not the difference between paying our bills and not, but it's the difference between doing extra things for our kids and not,” Brandon Odell said. Medicaid and private insurance primary cover services for Ellie like physical and speech therapy, but the credit has given them the wiggle room to provide swimming and piano lessons for Evelyn, their 7-year-old.
“While my family is fine financially, we all notice the rising prices at the grocery stores, and for families that are middle-class the loss of that extra $200 or so a month, coupled with rising prices for literally everything, is a real gut punch,” Odell said.
Rich Shipe is a pastor in Ashburn, Virginia, and a father to five. His wife Christy is self-employed and teaches piano lessons and lessons to a homeschool co-operative part-time. The family decided to save the money out of concern that the government may have overshot the payment and they will owe more at the end of the year.
“I’m worried people are going to get burned when they file their taxes because they are not going to get back what they normally get back because they already got it and spent it,” Shipe told The Dispatch.
Without the expansion, many families will still receive a child tax credit, just not in the form of monthly payments. And they will see a reduction of the amount. But some families will see the benefit go away permanently unless Congress intervenes.
It’s unclear if Democrats will be willing to broker a compromise with their colleagues across the aisle, if it means tweaking the requirements for who is eligible. Republican Sen. Susan Collins said Tuesday she would be willing to consider proposals to bolster the child tax credit. But like others in her caucus, she wants it tied to work requirements.
“I am open to proposals that would support working families and reduce childhood poverty and look forward to working with colleagues of both parties on bipartisan solutions,” Collins told the Bangor Daily News.
But families can’t plan their budgets around op-eds and Senate floor speeches.
“The belt tightening that we had been avoiding has definitely started,” Calcara said. “The kids have certainly noticed that they can’t talk their dad into stopping at the store or a restaurant for an unplanned treat anymore. We’re cutting back on unnecessary spending in every area that we can.”
*Correction, December 28: This piece originally misidentified the source's name as Tom Odell instead of Brandon Odell.