Democrats unveiled a $1,000 boost to the child tax credit on Monday as part of their coronavirus relief legislation that they will send to the House Ways and Means Committee for markup.
The current child tax credit is a partially refundable credit that gives taxpayers up to $2,000 per child, sometimes in excess of what the taxpayer would have owed.
If a family with one child only owed $100 in taxes, for example, it could still be eligible for up to a $1,400 credit. The current credit benefits roughly 90% of all families with children, according to the Tax Policy Center, but Democrats have disagreed about the structure of the refundable credit — it requires that the taxpayer earns at least $2,500 in taxable income, and the size of the credit grows with the size of the taxpayer’s income up to a certain point.
“If you are very low income, if you have no earnings, you get no child tax credit because you don’t owe taxes and you’re not working, so you can’t get that piece,” Tax Policy Center’s Elaine Maag told the Washington Examiner. “If you’re a little bit higher earnings, maybe $10,000, you can’t get the full credit. If you’re middle income, you owe enough taxes or have enough earnings that you get the full $2,000 per child, and then if you’re very high earning, the credit starts to phase out.”
Maag said the $2,500 income requirement means that roughly 20 million children live in households that don’t earn enough to receive the full benefit.
Democrats’ current proposal would remove the $2,500 requirement, offering the full credit to anyone who makes less than $75,000 a year, or $150,000 for joint filers. It also expands the credit to cover children who are under 18 years old, replacing the current cap with 17-year-old children, and boosts the credit to $3,600 for children under the age of 6.
One of the biggest changes to the current law in the Democrats’ proposal is the ability to receive the child tax credit in monthly payments rather than a lump sum during tax season.
Republicans on the Ways and Means Committee panned the bill, saying that Congress’s focus “should be on crushing the virus and rebuilding our economy” with legislation that garners bipartisan support.
“Unfortunately, the bill placed before us at this late hour don’t fit that effort, and Democrats are insisting on pushing forward on an almost $2 trillion bill without bipartisan compromise,” ranking member Kevin Brady said in a statement. “We will remain steadfast in our focus to maximize vaccine distribution, target relief, and help workers, families, and small businesses get back to their lives.”
Republicans may not agree with the Democrats’ most recent proposal, but some do agree with Democrats that the child tax policy needs to be expanded. Rep. Gary Palmer, the chairman of the House Republican Policy Committee, told the Washington Examiner that he supported increasing the child tax credit because it allows parents to keep more of their income and doesn’t contribute to the federal deficit.
“I would much rather let parents keep more of their tax dollars with a child tax credit so that they can afford to raise a family rather than have the government pour more money into failed programs designed for that purpose,” Palmer said. “I also support reducing spending, given the threat of our growing national debt.”
Sen. Mitt Romney introduced a proposal that would replace the child tax credit with a monthly payment that begins during a mother’s pregnancy. His proposal also removes the current income requirement so that “low-income families would no longer have to choose between a bigger paycheck or maintaining eligibility for support.”
Democrats are not likely to take up the bill as part of their coronavirus relief package, but White House chief of staff Ronald Klain called Romney’s proposal “an encouraging sign that bipartisan action to reduce child poverty IS possible.”
The Democrats’ proposal is only a temporary change that would expire on Jan. 1, 2022. Other similar proposals, including the American Family Act introduced by Democratic Sens. Michael Bennett and Sherrod Brown, would make the changes permanent. The bill has the support of 35 other Democratic senators but has no Republican co-sponsors.
“Whether it will become permanent will likely hinge on how successful proponents are at figuring out how to pay for it,” Maag said. “If the rollout of the program is successful and people see their government working for them, it might be a way to gain relatively quick public support.”
