The expanded child tax credit expired at the end of last year, leaving families reeling just as the program began to make a dent in child poverty. The American Rescue Plan, passed last March, had provided parents with a larger credit that was for the first time disbursed on a monthly basis, as opposed to once a year as a tax refund, and accessible to households too poor to file income taxes. It was set to be extended by a year by the Build Back Better Act, but that bill was tanked at the end of last year by Senator Joe Manchin, in part due to his skepticism of the child tax credit.
There is a nonzero chance, albeit closer to zero than not, that a version of the child tax credit could pass in a stand-alone bill. This would require 60 votes in the Senate, meaning it would need to garner support from 10 Republicans as well as all 50 Democrats. Cracking open the door to bipartisan negotiation, one GOP senator has already proposed a benefit that would be available to the lowest-income Americans: Senator Mitt Romney introduced the Family Security Act in early 2021, but it has not garnered widespread support from his colleagues of either party—yet.
Romney’s proposal would provide a monthly allowance of $350 for children under age 6 in households earning under a certain threshold, which is more generous than the $300 per month distributed under the American Rescue Plan. Parents with children ages 6 through 17 would receive $250 per month, the same as the expanded child tax credit. It would be distributed through the Social Security Administration and available to every child with a social security number.
The maximum monthly payment would be capped at $1,250 per family, or $15,000 per year, with no income requirement. Like the current credit, it would begin phasing out at $200,000 for single filers and $400,000 for joint filers. The Niskanen Center, a centrist think tank, estimates that Romney’s plan would reduce child poverty by roughly one-third and deep child poverty by half.
The expanded credit implemented by the American Rescue Plan, and the current credit ($2,000 per year, not distributed on a monthly basis and not fully accessible to the poorest Americans), is administered entirely by the IRS. When the expanded credit went into effect in mid-July, the IRS began sending checks on a monthly basis for the first time. There were some hiccups in the rollout, and the credit was not claimed by all of the people who could have benefited from it. Even so, the credit reached more than 61 million children and lifted 3.7 million children out of poverty in December. On its own, it cut child poverty by nearly 30 percent. The payments were also associated with a roughly 26 percent decrease in household food insufficiency, according to a January study.
If the expanded credit were extended, data suggests that it would need to be accompanied by additional outreach to the lowest-income families to ensure that they receive the money. “The child tax credit is an annualized tax refund. And when you’re doing something that’s annual on a monthly basis, it makes it difficult to treat it like a proper benefit,” said Samuel Hammond, the director of poverty and welfare policy at Niskanen. “To make that work, Democrats have had to create a bunch of hacks, workarounds, and kluges that are less than optimal.” (Hammond has helped author child tax credit proposals from lawmakers on both sides of the aisle, including the Family Security Act, and supported extending the enhanced child tax credit implemented by the American Rescue Plan.)
There are some obvious benefits to distributing an allowance instead through the Social Security Administration, an agency already familiar with sending monthly checks. It has the infrastructure set up to help recipients navigate the programs and experience in screening for fraud and abuse. However, while using the SSA may make sense in the long term, initially implementing a monthly child allowance through the agency could be difficult, as it would have to identify and find every eligible child. It would be a large lift for the SSA to begin serving a new population and could affect other benefits administered by the agency. Moreover, it would not be available to the children of noncitizens, who don’t have social security numbers.
But the most significant difference between the Democratic proposal and the Family Security Act rests in the revenue stream. Critically for Republicans, the Romney plan is deficit-neutral through at least 2025, when many tax breaks implemented under President Donald Trump expire. Because it is fully paid for, it might be easier to make permanent. But the plan would eliminate several benefits, which critics say may have unintended consequences. It would simplify the Earned Income Tax Credit, replacing it with a flat credit of up to $1,000 per year for working adults, $2,000 for couples filing jointly. The child-related benefits for the current EITC would be repealed, raising concerns that any benefit a low-income family received from a child allowance would be offset by cuts to the EITC. The adult-dependent benefits would be preserved. (The current EITC has faced criticism for providing few benefits to workers without children, and the American Rescue Plan temporarily expanded EITC benefits for childless workers.) But the Romney proposal posits that a credit for low-income workers would still exist, just one focused solely on getting people back to work.
It would also end the head-of-household filing status, which gives income tax breaks to single parents. (Hammond, who co-wrote a report called “The Conservative Case for a Child Allowance” last year, argued that the EITC and the head-of-household filing status have an implicit marriage penalty, which Romney’s proposal would thus repeal.) It would eliminate the childcare-dependent tax credit, or CDCTC, aimed at helping working parents afford childcare; the Temporary Assistance for Needy Families, or TANF, program; and the state and local tax, or SALT, deduction.
The Tax Policy Center estimates that few families with children benefit from the CDCTC, with 14 percent expected to benefit in 2021 because the American Rescue Plan made the credit temporarily refundable, meaning that if a family qualified for a credit that exceeded their owed taxes, they could receive the difference as a tax refund. Otherwise, the Tax Policy Center estimates only 12 percent of families with children would benefit. Eliminating TANF and the SALT deduction might be more controversial.
The TANF program is deeply flawed. The federal government hasn’t increased the block grant of $16.5 billion to states since 1996, when it was first implemented. In practice, many states use TANF money to pay for programs that are unrelated to helping low-income families enter the workforce. In 2019, only 23 out of every 100 families in poverty received cash assistance from TANF. Although TANF benefits have increased in 20 states and the District of Columbia since July 2020, benefits are at or below 60 percent of the poverty line in every state and are below 20 percent in 16 states, with Black children more likely than white children to live in states with the lowest benefits.
Elaine Maag, a senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said that, in theory, it would be good for families not to have to apply for multiple programs and receive their benefits piecemeal—but those programs do exist, and ending them could have ripple effects. Unilaterally eliminating TANF may have unintended consequences for the poor Americans who rely on it. For example, in some states, some benefits—such as the Supplemental Nutrition Assistance Program and the Special Supplemental Nutrition Program for Women, Infants, and Children—are automatically tied to TANF eligibility.
“I would want to sit down and add up benefits that families are getting from the various items that are being proposed for consolidation, and just make sure that families are actually better off,” Maag said. “The legislation can be very careful about all of this and make sure that doesn’t happen. My criticism is just, we need to be careful when we start mucking around with multiple programs.”
The most significant revenue stream in Romney’s proposal is eliminating the SALT deduction, which is a bit of a sore spot for some Democrats. Although the SALT deduction primarily aids wealthy Americans, it’s supported by many Democrats in states with high property taxes, such as New York, California, and New Jersey. The 2017 tax law introduced a $10,000 cap on the deduction, which these Democrats are dead set on repealing. Multiple House Democrats have staked out the position of “no SALT, no deal” on Build Back Better, and efforts to reach a compromise in the Senate have mostly foundered.
Biden last week indicated that he did not believe the child tax credit would be included in the final version of the Build Back Better Act, despite caring “a great deal” about the program. Manchin has questioned whether the income thresholds for the credit should be lowered, and stipulated that it should be tied to a work requirement to the credit. In a memo last summer to Senate Majority Leader Chuck Schumer, outlining his position on Build Back Better, Manchin stated his opposition to “additional handouts or transfer programs.” He has frequently claimed that Biden’s social agenda, if implemented in full, risks turning America into an “entitlement society.”
Congressional Democrats who have championed the child tax credit are not yet waving the white flag. Senators Michael Bennet, Cory Booker, Sherrod Brown, Raphael Warnock, and Ron Wyden sent a letter to Biden on Wednesday urging him to include an extension of the child tax credit in Build Back Better. Bennet, Booker, and Brown co-sponsored the American Family Act, which provided the basis for the version of the expanded credit in the American Rescue Plan. “Raising taxes on working families is the last thing we should do during a pandemic,” the five said in their letter.
But Democrats also have opened the door to bipartisan negotiations on the topic. Bennet said in a press call last week that he wanted to try extending the credit through the Build Back Better Act first, but that there is a “basis” for future negotiations to make the credit permanent. (In 2019, Bennet and Romney together introduced a proposal including a fully refundable child tax credit.)
“That creates an important basis for a bipartisan negotiation,” Bennet said, adding that he would consider working on a stand-alone bill if that is the only way to pass an extension of the credit. Bennet further said that Romney’s “policy is the same,” although the revenue streams are different. A spokesperson for Bennet later clarified that the senator strongly disagreed with Romney’s pay-fors and believes it is possible to fund an extension of the child tax credit without cutting other support for the poor.
Discussions of any bipartisan negotiation are likely premature, in part because Manchin’s skepticism about the child tax credit would likely extend to any stand-alone proposal as well. In a statement in late December, Romney said that he believed it was time Democrats began working with Republicans on the issue, but he added that “concerns about how changes to the CTC could impact a family’s connection to work can and should be addressed.” Republican Senators Marco Rubio and Mike Lee have proposed a child tax credit that is in some ways more generous than Biden’s, but they oppose the provision allowing families too poor to file income taxes to receive the credit and criticized Democrats’ plan for not including work requirements.
Imposing some form of work requirements may be the only way for advocates of the child tax credit to get an extension, in or out of the Build Back Better Act. And yet many Democrats would argue that this undermines the very purpose of the credit by punishing children living in poverty with unemployed parents.
But part of the solution may also be in how the credit is advertised. Democrats have touted the child tax credit expansion as an anti-poverty measure, noting how it has helped to lift children out of poverty and has the capacity to cut the child poverty rate by more than 40 percent. But that framing raises the question—among centrists and Republicans, anyway—of who should receive the credit, or whether it should be tied to work requirements, as many welfare benefits have historically been. Advocates of Romney’s proposal, conversely, argue that it’s a family-oriented policy, which makes it more appealing across the political spectrum.
“That framing is really important for defending expansion like this,” Hammond said. “Because as soon as you start talking about it being purely a poverty measure, then you’ve played into Manchin’s hands about means testing.” In other words, the West Virginia senator will need to be convinced—or at least be able to convince his supporters back home—that any such plan isn’t a handout, just a hand up for families.