THE US $ 1.9 trillion US bailout plan, sanctioned by President Joe Biden on Thursday, aims to support the economy hit by a pandemic through tax measures such as increased unemployment benefits and direct stimulus checks. But the legislation also includes a relatively new measure that offers a form of guaranteed income to parents of children under 18, or what an expert calls “a baby step towards universal basic income “.
This is because the relief bill includes a revision of the Tax Credit for Children (CTC), a part of the country’s tax law that has lasted 24 years and which today mainly benefits middle and upper income families. The American Rescue Plan reviews the CTC, expanding the benefit from $ 2,000 annually to up to $ 3,600 per child. It also includes more low-income families and distributes the benefit of credit through monthly cash payments.
These changes can have a major impact on millions of families, especially low-income families and those whose income may fluctuate from month to month. More than 4 million children could be lifted out of poverty, mainly children from black or Latino families, according to an analysis by the Budget and Policy Priorities Center.
The expanded CTC will require about $ 100 billion in additional federal spending. Columbia University researchers estimate it will generate more than $ 800 billion in benefits for society through better health for children and its long-term outcomes.
“It’s a big deal,” said David Wessel, director of the Brookings Institution’s Hutchins Center for Fiscal and Monetary Policy. “It is one of the most significant measures we have taken to lift children out of poverty. In many other countries, the government subsidizes families with children because they are the definitive investment in the future.”
Rich countries like Sweden and Ireland offer “child allowances” – direct payments to families to help with childcare costs. With the reform of the CTC, the United States will join these countries – albeit temporarily – in providing direct aid on a recurring basis to families with children.
“This puts us in the same league as other Western capitalist democracies,” added Wessel. “It is a small step towards universal basic income, or guaranteed income, and it will be interesting to see how it works in practice and how it is perceived by the public”.
Up to $ 3,600
The CTC has helped millions of families over the years, but its peculiar design meant that it sometimes bypassed the poorest families. Families that owed little or no income tax were entitled to just $ 1,400 per child, instead of the $ 2,000 benefit provided to wealthier families, according to the Brookings Institution.
About 27 million children currently do not receive the full tax credit, said Kris Cox, deputy director of federal tax policy at the Budget and Policy Priorities Center. “The current design of child tax credit is upside down,” added Cox.
This created an unbalanced impact, with low-income families less likely than wealthier families to benefit from the tax credit. In fact, about 40% of the tax credit went to families with incomes greater than $ 100,000, while only 15% went to families with incomes less than $ 30,000, Brookings noted.
“We want the tax code to raise our low-income families, and that’s not what happened,” said Joanna Ain, associate director of policies for Prosperity Now, a nonprofit organization focused on expanding economic opportunities for low-income families. income.
According to the American Rescue Plan, the CTC will be expanded to $ 3,600 for each child under 6 and $ 3,000 for each child between 6 and 17 (the credit previously excluded children under 17). These values will also be available for all smaller income families, marking a change from their previous limits for poor families.
The provision also includes income cuts for higher-income families, similar to the income limits of stimulus checks. Single taxpayers earning up to $ 75,000 and couples earning up to $ 150,000 would receive a total credit of $ 3,000 or $ 3,600 per child, but payments would be reduced for people with incomes above those limits.
Families earning a lot to qualify for expanded tax credits can still claim a basic $ 2,000 credit for their children, as long as their income is below the current limits of $ 200,000 for single contributors and $ 400,000 for couples.
Monthly payments – for a time
In addition to these changes, the CTC will be partially paid on a monthly basis, rather than claimed once a year when people file their tax returns. In other words, a family with two children under the age of 6 would qualify for $ 7,200 in CTC payments or $ 600 in monthly payments.
But there is an obstacle: the monthly payment will occur only from July to December this year, with the other half of the CTC paid when people file their income tax returns. In other words, families would receive six months of monthly income and then receive the rest of the CTC through the tax refund.
Still, receiving a guaranteed monthly income for half of 2021 can be a game changer for many low-income families, experts say. Low-income households have been particularly affected by the economic impact of the pandemic, partly because they are more likely to work in jobs than couldn’t switch to remote work.
“We see a lot of volatility in a person’s paycheck throughout the year, especially that of low-income families,” said Ain. “The stability of having an amount of money that arrives each month will improve your quality of life.”
The expansion of the Child Tax Credit was projected for just one year, which means that the program could return to its previous form in 2022. But policy experts hope that lawmakers can extend the expansion, especially if it is popular with voters. If the provision is not extended, millions of families may see the end of recurrent aid after the holidays.
To be sure, the Biden government and some Democrats in Congress recognized their goal of make expansion permanentt as part of their Build Back Better agenda, signaling that they believe that an investment in children will pay off through a stronger economy in general.
“These things don’t tend to go away” after they are enacted, noted Wessel.
Sarah Ewall-Wice of CBS News contributed to this report.