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The American Rescue Plan has been criticized by some for going far beyond relief related to the COVID-19 pandemic. One set of provisions that should not be controversial, however, are enhancements of tax credits for families with children that experts say could help cut childhood poverty in half, at least this year.
Even if those projections are overly ambitious, the enhancements to the child tax credit are a welcome change for millions of struggling families and their children. A year into the pandemic, 10 million Americans remain unemployed. That’s nearly twice as many as in February 2020.
In Maine, more than a quarter of residents are having difficulty covering usual household expenses and 17 percent of households are behind on their rent, according to the latest Census Bureau Household Pulse Survey. More than 50,000 Mainers filed jobless benefit claims last month.
Helping struggling families to pay their bills and feed their children may not be strictly COVID relief by some definitions, but it is needed help for those who continue to be economically harmed by the pandemic.
The rescue bill, signed into law by President Joe Biden last week, increases the child tax credit for 2021 from $2,000 to $3,000 for children over 6 and extends the credit until a child’s 18th birthday. For children under 6, the credit is now $3,600.
The credit is a direct reduction in a family’s tax bill. If a family owes $8,000 in taxes, for example, and they have two children between 6 and 17, their bill will now be $2,000. The expanded credit is also now fully refundable, meaning the poorest families can get money back from the IRS, money that can be spent caring for their children and themselves. These refunds could come every month instead of once a year as is typical with a tax refund.
The credit phases out for couples with incomes over $150,000.
“The significance of this moment in U.S. social policy is hard to overstate,” Christopher Pulliam and Richard Reeves wrote for the Brookings Institution. “In one year, the relief package as a whole is projected to cut the child poverty rate in the United States by more than half. For context, the child poverty rate declined from 17 percent in 2009 to 12 and a half percent in 2019 — a 26 percent decline over ten years.”
In Maine, the tax credit is predicted to lift 10,000 children out of poverty.
According to the Tax Policy Center, 70 percent of the tax benefits in the relief bill will go to low- and moderate-income households (those with incomes of less than $91,000 a year). By contrast, half of the benefits in the 2017 tax cut bill went to the top 5 percent of earners, according to the Center.
Both Sen. Angus King and Rep. Chellie Pingree highlighted the impact of this tax credit in statements after voting in favor of the $1.9 trillion relief package. Pingree said the bill will “cut child poverty in half and create life-changing opportunity for the next generation and their parents.” King said the legislation “addresses longstanding inequalities exacerbated by the coronavirus pandemic by adjusting [the] Child Tax Credit to help lift 10,000 Maine children out of poverty and investing key resources into broadband expansion.”
The child tax credit, along with many other provisions in the American Rescue Act, expires at the end of the year.
The child tax credits carry a hefty price tag — about $100 billion a year. But, if a refundable credit, distributed throughout the year, is documented to significantly reduce childhood poverty, it should be an investment worth making every year.