Included in the 628-page American Rescue Plan is a change that, experts say, will be a “historic” step in reducing child poverty.
The proposal calls for a one-year expansion in the amount and scope of the child tax credit for American families, something that some studies estimate could lift millions of children out of poverty.
The measure would increase the amount of the child tax credit to $ 3,600 per child under 6 years old and $ 3,000 per child between 6 and 18 years old. This is above a maximum benefit of $ 2,000 under the current policy. It also expands the ages of eligible children, who were previously limited to 17 years old.
Benefits begin to decline for heads of households who earn more than $ 112,500 a year or couples who earn more than $ 150,000 a year.
A notable change from the existing tax credit is that it would benefit low-income families by making the tax refundable, which means that even non-income families will receive it. Some experts have called the current policy “upside-down benefit” because the biggest benefit does not go to those in greatest need.
“Lower-income children receive nothing, moderate-income children have limited benefits and middle-income children receive US $ 2,000 per child,” said Elaine Maag, principal research associate at Urban Institute, a think tank based in Washington, DC on social and economic policy, current tax credit.
As long as the COVID relief bill is approved by the Chamber and signed by the president, the new program will be administered by the IRS, which will disburse the credit throughout the year, providing eligible families with a payment of up to US $ 300 per month. Payments are expected to begin in July.
It is hoped that the fact that people with low incomes and no income will be able to receive the credit will provide a great boost to families that lost income during the COVID-19 pandemic. Lawmakers who advocated adding to the COVID-19 relief bill hoped that this could help ease economic stress.
“The pandemic is driving families increasingly into poverty and it is devastating,” said Richard Neal, chairman of the House’s Ways and Means Committee, D-Mass., In a statement when the proposal was announced. “We are making the Child Tax Credit more generous, more accessible and, with the monthly payment, this money will make a difference in a roof over someone’s head or the food on the table”.
Some experts say the legislation “has been coming for a long time,” as there have been Democratic proposals for years to provide more assistance to families. But even for Republicans, the move has not proved to be an obstacle in party negotiations over the bill – which has yet to win a single Republican vote in the House or Senate.
The credit is only temporary, with an expected duration of one year based on the approval of the American Redemption Plan and with a cost of US $ 100 billion in a single year. But the Democrats made clear their intention to make it permanent.
“This project takes the first step, with an expansion of one year, and even this is extremely historic. This would place more than 4 million children above the poverty line, reducing the number of children in poverty by more than 40%. If you look back, historically, the child tax credit and earned income tax credit lifted around 5.5 million children out of poverty in 2018, all at once, ”said Kris Cox, deputy director of federal tax policy. the Center for Budget and Policy Priorities, a non-partisan research and policy institute.
The fact that this expansion is not linked to income also represents a philosophical shift in social policy and puts the United States on the right track with other wealthy nations, many of which have allowances for children or similar programs.
Zach Tilly, a political associate at the Child Defense Fund, said the “historic” expansion will “triple the power to fight poverty” of the already useful child tax credit.
“In the United States, for a long time, we had a kind of stubbornly high and persistently high child poverty rate, especially compared to the rest of the world,” said Tilly. “And I think a lot of that persistent high rate of child poverty has to do with a long lack of federal investment in children, particularly poor children, and particularly colored children, especially black children.”
Although the expansion of the child tax credit is universal, it will have great benefits for blacks and Latin Americans who face disproportionate levels of poverty.
“Due to historic barriers of opportunity, families with children of color have been disproportionately neglected to receive the full benefit and the treatment of racial equality is certainly a result of this legislation,” said Cox.
Some Republican lawmakers fear that removing the income requirement will discourage families from working. Sens. Marco Rubio, R-Fla. and Mike Lee, R-Utah, released a statement saying he approved “recent proposals to increase tax breaks for working families”, but want them to be linked to work.
“… We do not support the transformation of the Child Tax Credit into what was called ‘family allowance’, paid as a universal basic income for all parents. This is not a reduction of taxes for working parents; it is social security assistance,” said the statement. “An essential part of being pro-family is being pro-work. Congress should expand the Child Tax Credit without undermining parents’ responsibility to work to support their families. ”
Robert Rector, a senior researcher at the Heritage Foundation, a center for conservative public policy studies, argues that expanding child tax credit is a partisan effort to reverse pension reform.
“At the very least, it’s just sending a message that says you can count on other people’s support. We have no expectations, you need to do anything to support yourself, and even poor people don’t agree with that,” said Rector.
Others fear that the IRS may not be equipped for a project of this size. Although the bill allocates resources to the IRS in order to predict the increase in work associated with the change, there is concern about implementation hiccups, especially in the middle of the tax season, a historically eventful period for the agency.
“I worry about the overhead of the IRS,” said Maag of the Urban Institute. “There was funding in the legislation to try to help resolve this. They also have strong leadership that seems to want to make this program work and leadership is important, especially when you’re trying to do new things. ”
The IRS implemented two rounds of direct payments in 2020, and Maag said that these rounds of benefits, along with the information he collects as Americans register taxes, have improved the data the agency needs to deploy expanded credit, despite decades of budget cuts, which makes programs like this more challenging.
Once families receive payments, experts speculate that the program – which puts money in people’s pockets – will be popular and therefore more likely to remain in place.
“I think it is difficult to take something that is popular. In this case, they are trying to deliver this benefit in advance throughout the year, which means that they will potentially send a monthly check to all eligible parents … and I think that would make it difficult to withdraw it, ”said Maag .
Benjamin Siegel of ABC News contributed to this report.