The child tax credit in the United States, a tax break for families with children, was recently expanded under the American Rescue Plan to provide $3,000 a year per child and give the credit to millions of families with low or no income. The expansion is expected to cut child poverty by 40%, with 9 out of 10 American children benefiting. However, the enhanced child tax credit is set to expire next month unless Democrats can pass a roughly $2 trillion package to extend it. Republicans oppose the bill, arguing it is too costly at a time of rising inflation. Democrats are rushing to ensure that the Jan. 15 checks will still land in families’ bank accounts, with the Treasury Department warning that the Dec. 28 deadline to pass the bill and ensure no disruption is approaching.
But rarely has it provided the boost to families seen with this year’s changes.
For more than 20 years, American taxpayers have been afforded a tax break for their children. Started as a $500 per child write-off under Bill Clinton in 1997, it changed over time and was beefed up under Donald Trump’s GOP tax cuts in 2017. Biden’s American Rescue Plan increased the credit to $3,000 a year, added 17-year-olds and boosted the amount to $3,600 for children under six years old. Most dramatically, it gave the credit to millions of families with low or no income, even if they didn’t earn enough money to pay income taxes or pay enough tax to qualify for the refund.
Studies suggest the child tax credit expansions are expected to cut child poverty by 40% – with 9 of 10 American children benefiting. All told, some 4.1 million children are on track to be lifted above the poverty line, according to analysis from the Center for Budget and Policy Priorities.
After the first checks started arriving in July, about one-third of recipient families used the money during the first few months to pay down outstanding debt, along with paying for school supplies and child care, according to preliminary reports from the U.S. Census Bureau.
Families in New Mexico, which has one of the country’s highest child poverty rates, spent nearly 46% of their child tax credit money on food, a study by Washington University in St. Louis’ Social Policy Institute found.
“It says a lot about what families are worried about,” said Sharon Kaye, communications director for New Mexico Voices for Children. “This is hugely important to a lot of families.”
Republicans are fully opposed to Biden’s larger policy bill, which would extend the tax credit, arguing the overall health, education and climate change package is too big and costly at a time of rising inflation.
On Tuesday, Sen. John Thune, the No. 2 Republican, said his side was fine letting the policy lapse as the coronavirus crisis eases and the temporary aid goes away.
“The thing I don’t think you want is a huge spike in spending,” Thune told reporters. “And that would probably be the most obvious example of an inflationary type policy.”
Faced with Republican opposition, Biden is trying to pass the roughly $2 trillion package with Democrats alone, which the House has already done. But the path in the evenly split 50-50 Senate is more difficult, with no room for dissent.
Biden has been in talks with one key holdout, Sen. Joe Manchin, who appears to be the final obstacle for Democrats trying to pass the big bill by Christmas.
Asked specifically about the expiring tax credit this week, Manchin did not respond to repeated questions about the potential loss.
One Democrat who has had “many, many, many conversations” with Manchin is Sen. Michael Bennet of Colorado, who said the West Virginian “is not at this moment a fan of the Child Tax Credit.”
Bennet said he hopes Manchin will come to see that the extension would help the country because it would enable more parents to afford child care and work. “My hope is that with the one-year extension of the enhanced credit he will become a fan and we’ll see,” he said.
When it became law this year, the expansion of the child tax credit was hailed as a potential philosophical shift in the way that government assistance programs work by emphasizing a direct, no-strings cash support.
Instead, the program delivers discretionary cash directly into parents’ bank accounts, leaving the parents to decide how best to use it. Recipients spend it on food, rent, school supplies or even recreational activities. Proponents described it as an element of trust that had been lacking in much of the American social safety net – relying on parents to make the right decisions on their family’s needs.
Robert Greenstein, a visiting fellow at the Brookings Institution, compared the child tax credit to America’s signature safety net programs – Social Security, Medicare and Medicaid – which have been adjusted and changed over the years to become mainstays in American life. He said there are few policies that are more important.
Greenstein said the benefit flows not just to the families receiving the cash, but has the potential to bring long-term economic benefits. “We’ll end up having healthier, better-educated generations of children who can be more productive workers in the U.S. economy of future decades,” he said.
“People are often skeptical – the government doesn’t do things right,” he said. “This is an example of something that they really got right.”
With the last checks now slated for Wednesday, Democrats are rushing to ensure that Jan. 15 checks will still land in families’ bank accounts. The Treasury Department has warned lawmakers that Dec. 28 is the deadline to pass the bill and ensure no disruption, though lawmakers have suggested payments could be made retroactively if Biden’s package stalls.
In conclusion
The child tax credit expansion under the American Rescue Plan has been hailed as a potential shift in the way government assistance programs work, providing direct cash support to families with children. The credit, which is set to expire next month, is expected to cut child poverty by 40% and benefit 9 out of 10 American children. However, Republicans oppose the roughly $2 trillion package to extend the credit, arguing it is too costly at a time of rising inflation. Democrats are rushing to ensure that the Jan. 15 checks will still land in families’ bank accounts, with the Treasury Department warning that the Dec. 28 deadline to pass the bill and ensure no disruption is approaching. The child tax credit has been shown to have long-term economic benefits, and proponents believe it is an important policy that has the potential to lift families out of poverty and improve the lives of future generations.
FAQ
What is the child tax credit?
A tax break for families with children has been expanded to $3,000 per child per year under the American Rescue Plan.
Who benefits from the child tax credit expansion?
Nine out of ten American children, including millions of families with low or no income.
What is the expected impact of the child tax credit expansion on child poverty?
It is expected to cut child poverty by 40%, with 4.1 million children lifted above the poverty line, according to the Center for Budget and Policy Priorities.
What did families use the child tax credit money for during the first few months?
About one-third of recipient families used the money to pay down outstanding debt, along with paying for school supplies and child care.
What did families in New Mexico spend their child tax credit money on?
Families in New Mexico spent nearly 46% of their child tax credit money on food, according to a study by Washington University in St. Louis’ Social Policy Institute.
Why do Republicans oppose the extension of the child tax credit?
They argue that the overall health, education, and climate change package is too big and costly at a time of rising inflation.
What is the path to passing the roughly $2 trillion package to extend the child tax credit?
Biden is trying to pass the package with Democrats alone, but the path in the evenly split 50-50 Senate is more difficult, with no room for dissent.
Who is the final obstacle for Democrats trying to pass the big bill by Christmas?
Sen. Joe Manchin, who is not at this moment a fan of the Child Tax Credit.
What did Robert Greenstein compare the child tax credit to?
America’s signature safety net programs – Social Security, Medicare and Medicaid – which have become mainstays in American life.
What potential long-term economic benefits does the child tax credit have?
It has the potential to bring healthier, better-educated generations of children who can be more productive workers in the U.S. economy of future decades.