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Despite a flurry of last-minute activity at the end of the previous Congress, federal lawmakers and the White House were not able to reach a deal to revive an expanded child tax credit. But there is hope, and need, to believe that such a deal remains possible even with a newly divided Congress.
The federal child tax credit is nothing new, and has existed in some form for more than 20 years. But in 2021, congressional Democrats and the Biden White House supercharged it through the American Rescue Plan Act.
While these enhancements were in effect, the credit was fully refundable, and paid out in full even if someone owes less than that amount in taxes.The maximum value of the credit rose from $2,000 to $3,600 per child under age 6 and $3,000 for older children. Additionally, the benefit was automatically paid in cash each month beginning in July, rather than paid as a lump sum when taxes are filed.
Even in a short window, the results were telling. A U.S. Census Bureau report indicates that the expanded credit lifted more than 2 million children out of poverty.
Unfortunately, despite these promising results, Congress let the expanded credit lapse and this benefit reverted back to the previous levels and policies. There have been bipartisan rumblings about bringing an expanded child tax credit back in some form, but so far, no action.
Recent comments from Republican Rep. Jason Smith of Missouri, the new chair of the House Ways and Means Committee and thus a key figure in any tax policy debate, provides a small sliver of optimism. Smith recently said he could work with Democrats on the child tax credit, according to Politico. The White House already looked to be in dealmaking mode on this issue at the end of 2022.
The details of reaching such an agreement, of course, will be more difficult than recognizing the need for action. Luckily, lawmakers don’t have to start from scratch. In a March 1 report published by Brookings, for example, Wendy Edelberg of the Hamilton Project and Melissa S. Kearney from the Center on Children and Families layed out a proposal for an expanded, partially refundable child tax credit. The proposal aims to capture successes of the expanded credit while addressing some concerns, principally from Republicans, such as the overall cost and whether a fully refundable credit could keep some parents out of the workforce.
“[W]e propose a compromise-enhanced CTC design that is distinct from both the 2021 expansion design and current law,” Edelberg and Kearney wrote. “In the absence of political constraints, we would propose a design that awards the full credit amount to those with no earnings to advance the goal of delivering income assistance to the most economically vulnerable families. However, the design we propose here, with a partial award to non-earners and a sharp phase-in, helps address the three main concerns that various policymakers and commentators have expressed about re-introducing the 2021 expansions.”
This may not be the precise proposal that gets a new expanded child tax credit over the finish line, but it should prove to lawmakers that compromise is possible — and necessary.
Congress regularly frustrates us with its inaction. It is particularly frustrating to see lawmakers fail to act on continuing one of their successes. Regardless of party or how people voted on the American Rescue Plan Act, everyone should look at a significant reduction in child poverty as a great success. So with those numbers disturbingly on the rise again, the need to forge an agreement on an expanded child tax credit is clear.