None of the family policies the Biden administration has wanted — an expanded child allowance, paid family leave or subsidized child care — have come to pass. Now, with less than a month before the new Congress starts, Democrats are trying once more to push through one of them: the expanded child allowance.
The idea had a test run in the second half of 2021, when the administration sent families monthly checks as part of the pandemic relief package. The bill raised the amount of the pre-existing child tax credit, and also included families with very little or no income. The result was a near doubling of government investment in children and a substantial reduction in child poverty. Since that expansion ended, one in four children have received less than the full amount, including about four in 10 Black and Latino children. About 3 percent — children of the lowest-earning parents — get nothing.
In current debates about the child tax credit, the biggest point of contention is who would receive it. Many Democrats again want to expand it to the lowest earners. Some Republicans want to continue to give it only to families who earn a certain amount, to encourage parents to work. A new policy would need support from members of both parties.
“The left loves to focus on the poverty reduction element of the C.T.C., and it is important and nobody wants kids to be in poverty,” said Patrick T. Brown, a fellow at the Ethics and Public Policy Center, a conservative think tank. “There’s just this overarching question of: What’s the best way to get them out of poverty? Is it giving them cash, or encouraging their parents to get a stable job?”
Do parents get a child tax credit now?
Yes. This tax year, it’s a maximum of $2,000 per child per year. When the Trump tax cuts expire in 2025, the credit is scheduled to return to its previous level of $1,000 per child.
Parents must earn more than $2,500 a year to get any amount of the credit, and start to receive the full amount when earning between $23,000 and about $29,000, depending on filing status. The credit begins decreasing when married parents earn more than $400,000 a year, or $200,000 for single parents.
How would an expanded tax credit be different?
The details are still being debated, and in a highly polarized Congress, it’s unclear if policymakers will come to any agreement. But Democrats say they are hoping for a more modest version of the 2021 expansion, which was based on a bill by Senators Michael Bennet of Colorado and Sherrod Brown of Ohio. The 2021 expansion increased the credit to $3,000 per child and $3,600 for children under 6, and also added 17-year-olds.
The biggest change was that even low earners or those without any income were eligible for the full credit, while families with high incomes were not eligible for the expansion.
The result was a nearly 30 percent decrease in child poverty, research suggests. The average credit for the lowest fifth of earners before 2021 was about $1,200. In 2021, it was about $4,500, according to the Tax Policy Center. Black and Latino children in particular became much more likely to receive the full credit.
Overall, Black and Hispanic workers earn less, so when benefits are tied to earnings, “you end up excluding a disproportionate share of Black and Hispanic children,” said Elaine Maag, a senior fellow at the Tax Policy Center.
What would keep an expansion from happening?
The main point of disagreement is whether the child benefit should be available to families with little or no income, as it was in 2021. Here’s how that works: Most tax credits are known as nonrefundable, which means people can’t claim credit for more than the amount of taxes they owe. And people who don’t pay any income tax receive no credit. When tax credits are refundable, on the other hand, any amount larger than taxes owed is paid directly to the person.
Part of the existing child tax credit is refundable, but for very low earners, the maximum they can receive is $1,500, and people with no income receive no credit. Many Democrats would like to include more families.
“I think full refundability is critical, because otherwise you’re punishing the poorest kids in America just for being poor, and that makes no sense to me,” Mr. Bennet said.
Among Republicans, there are mixed feelings about refundability. Most want only parents with incomes to be eligible for the child tax credit, to incentivize work. They also want the benefit to ensure that there is no marriage tax penalty.
But another group of conservatives believes that financially supporting families, regardless of income, could achieve policy goals like increasing fertility and enabling parents to spend more time at home with their children. Some policymakers also say they want to give more support to families as conservative states ban or restrict abortion.
In 2021, Senator Mitt Romney, Republican of Utah, released an alternative child tax credit proposal. Originally, it included parents with no income. After pushback from Republican colleagues and from Senator Joe Manchin, Democrat of West Virginia, he added a minimum income of $10,000.
“We’re not just an antipoverty movement, we’re a pro-family movement,” Mr. Romney said at an American Enterprise Institute panel in July.
“I believe that we want to get help to people to feel that they can afford to get married and could afford to have a child,” he said.
What are the other areas of debate?
Coming to an agreement could require some bargains on the details. Under discussion are the amount of the credit; the income cutoff for receiving the full amount; the maximum number of children covered in each family; and whether checks would come monthly or once a year at tax time.
Also, how to pay for it. The current push is to include it in year-end tax extender legislation. By tradition, this would not require a source of funding, so the cost of an expansion is not a key issue in the debate happening now. In their large social safety net bill that imploded a year ago, Democrats proposed paying for a bigger child tax credit with tax increases on corporations and the very wealthy. The Republican proposal from Mr. Romney and others would pay for it mostly through a large cut in the earned-income tax credit and other tax changes.
Could it really happen this year?
Congress is running out of time to pass its year-end spending bill. But the child tax credit could still be included: Some Democrats are trying to negotiate by giving Republicans something they want, an extension of corporate tax cuts.
Even if it doesn’t happen this year, some version of a child allowance has bipartisan interest, and could be taken up by the new Congress next year.