Democrats have said the expansion of the child tax credit might be the most important part of the American Rescue Plan, the coronavirus relief bill President Joe Biden signed into law last week.
The bill provides one-time payments worth $1,400 to most Americans, but the child tax changes will give most parents an additional $3,000 or more per minor child ― sums that could cut child poverty in half.
The trouble is, the payments are only for this year, even though Democrats view them as the beginning of a permanent new child benefit and the greatest expansion of the federal safety net in generations.
And Democrats wanted the Internal Revenue Service to pay the credit in advance, on a monthly basis starting in July, but, for obscure parliamentary reasons, the bill tells the IRS to make “periodic” payments. Now nobody knows if the IRS will still go for monthly benefits or aim for some other time interval.
“I think all of us would like it to be monthly and we’re working toward that,” Sen. Michael Bennet (D-Colo.), one of the architects of the policy, told HuffPost.
Other Democrats said parents may have options as to how frequently they receive the money. Ohio Sen. Sherrod Brown said he’s been in close consultation with the Treasury Department about the plan.
“The goal is to give the beneficiary a choice between monthly or semi-annual, twice a year,” Brown said.
Most people won’t have to do anything to receive the money. Sometime after July 1, the IRS will start dispersing the funds to the public, just like it’s sending the $1,400 payments now. The law tells the IRS to set up an online portal where people can opt out of the advance payments, as well as update their bank account information and details about their kids.
Though the IRS has practice sending checks to the majority of U.S. households, three months is not a lot of time to stand up a new child benefit. The American Family Act, a bill by Bennet and Brown that served as the basis for policy, would have given the agency a year to get started.
While the IRS figures out how to get the money out the door, Democrats themselves are hoping to find a way to make the policy permanent. It’s one of several legislative priorities for progressives, alongside a higher minimum wage, expanded voting access and climate change legislation.
But the policy is sure to face renewed Republican opposition after the American Rescue Plan sunsets at the end of the year. Democrats tucked the measure into what they sold as a coronavirus relief bill, so they’ll likely need to build support for its extension in another manner next year, after the pandemic is presumably over. It costs about $100 billion per year, meaning it’s a full trillion in the 10-year budget window.
Democrats will hammer Republicans who oppose extending the child allowance plan since allowing it to expire would put millions more families below the poverty line in 2022. And many permanent tax policies start out as temporary ones that lawmakers essentially dare each other to let die.
“The question is, does the Senate want to double the child poverty rate after this bill expires? That’s a pretty tough question to say yes to,” Brown said.
The law increases the child tax credit from $2,000 per child to $3,600 for kids younger than six and to $3,000 for kids younger than 18. It also makes the credit fully refundable and eliminates the earnings requirement, meaning parents who earn no money through work will receive the full amount in cash.
Giving parents money with no strings attached is a major policy breakthrough. For decades, Republicans and Democrats alike insisted that any government program that helps people must also include “work requirements.” But polls showed that people liked it when Congress dished out checks in response to the pandemic last year, and Democrats took note.
Some experts have criticized Democrats for using the tax code to deliver the benefit. Matt Bruenig, founder of the People’s Policy Project, a left-wing think tank, has said it’s a big mistake to have the IRS send out benefits based on tax returns for a previous year, with actual eligibility still based on the current year. If someone’s income changes, Bruenig noted in an analysis of the proposal, “the IRS will claw back the overpayments via a surprise tax bill that could be thousands of dollars high.”
The law has a “safe harbor” provision, forgiving clawbacks for households who receive overpayments based on an incorrect estimate of the number of children in their households. (More than 3 million children wind up with a different adult in a given year than they did the prior year, according to the Center on Budget and Policy Priorities.) Lower-income taxpayers won’t have to pay the money back, but the amount of forgiveness diminishes for higher earners, and there’s no forgiveness for people who lose eligibility due to higher incomes.
Single heads of households earning less than $112,500 and couples earning less than $150,000 qualify for the full amount, but couples earning up to $400,000 are still eligible for partial benefits of $2,000 per child.
Despite the risk of clawbacks, the program will be popular since 90% of households stand to receive more checks, said Chuck Marr, a tax expert with the Center on Budget and Policy Priorities.
“If it becomes monthly, then it’s very noticeable to the broad swath of middle-class people, and that makes it very sustainable, the same way Social Security is politically strong,” Marr said.
In their public statements about the tax credit, most Democrats have focused on the overall amount of money parents will receive per child per year and the amount of poverty it will reduce. And in his original outline of the American Rescue Plan, Biden included the bigger tax credit, but not the advance payments.
Since the federal government officially measures poverty using an annual metric, a huge lump sum of cash all at once reduces poverty just as much as a smaller monthly benefit — even though recurring, dependable payments would probably make poor people’s lives a lot less chaotic.
Bennet said Democrats will remain committed to paying the credit in advance and would not settle for a lump sum tax refund.
“The advance payments are critical,” he said. “We are committed to achieving it and I think we can.”