I Keep Reading About A Bipartisan Tax Resolution That Would Extend The Child Tax Credit

The Republicans Are Going To Agree To Something Good For Poor People?

Yesterday, in a statement, Erica Payne, president of the Patriotic Millionaires, wrote “Enhancing the Child Tax Credit (CTC) is an undeniable good in this new deal. During the height of the pandemic, despite significant economic strain for many, we saw significant reductions in child poverty by providing just a little bit of a cushion to working families. There’s no question that this credit should be enhanced if we care about lifting 9 million American children out of poverty. At the same time, I’m disgusted by those who saw the obvious need to extend those benefits as an opportunity to extract tax cuts for corporations, who clearly didn’t need them as they pulled in record profits and artificially pumped up inflation. There was no need for horse trading on the CTC. Congratulations to the members of Congress who have worked hard to extend and enhance the Child Tax Credit; we hope to see it become law. Shame on those who exploit political moments to shower their ultra-rich corporate donors with unnecessary tax breaks."

OK, I see. Conservatives will go along with the CTC in return for tax breaks for their ultra-rich campaign donors. Senator Ron Wyden (D-OR) and Rep. Jason Smith (R-MO) made the 78 billion deal, which would increase the maximum credit per child from $1,600 to $2,000 through 2025 and would raise the ceiling for the low-income housing tax credit by 12.5% through 2025, “allowing states to allocate more credits for affordable housing projects.” It would also lower the threshold for bond-financed buildings to receive the low-income housing tax credit. And victims of wildfires and the Norfolk Southern derailment in East Palestine, Ohio, would receive some tax relief, with any disaster relief payments not counting toward their taxable income.

Wyden: “Sixteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead… [T]he improvements this plan makes to the Low-Income Housing Tax Credit will build more than 200,000 new affordable housing units.” 

Why would Republicans agree? Three business deductions that were taken away in the 2017 Tax Cuts and Jobs Act would be restored under the deal. The deal would push back a current law that requires businesses to deduct research and development costs over a five-year period, instead allowing them to deduct the costs of American-based research and development investments immediately.

Let’s look at this deal— proposal— more closely, which would see the GOP allow something like 16 million children in low-income families benefit, including at least half a million children lifted above the poverty line, something conservatives have opposed all through history in order to maintain traditional social structures and order. They believed that established institutions and hierarchies were essential for stability and social cohesion. Government interventions that sought to radically change these structures— using taxpayer money— including those aimed at addressing poverty, were viewed with hostility. Conservatives— particularly Adam Smith, John Stuart Mill, Jean-Baptiste Say and Frederic Bastiat— in the 18th and 19th centuries adhered to the principles of laissez-faire economics, which advocated for minimal government interference in the economy. They argued that free markets, unrestricted by government regulation, would lead to greater economic efficiency and prosperity and insisted that allowing the market to operate without interference would naturally result in wealth creation and benefit society as a whole (trickle down). They stressed the importance of individual responsibility and self-reliance and demanded that individuals take responsibility for their own well-being and that excessive government intervention could undermine personal initiative. In this view, poverty was sometimes seen as a consequence of individual choices, and efforts to alleviate poverty through government action might be seen as impinging on personal freedoms. More to the point politically, conservatives were concerned about potential social disruption that could arise from social change. Addressing poverty through government intervention, especially if it involved significant redistributive policies, was viewed as a threat to social stability and the status quo and abhorred the whole idea of equality as a goal. They inisted that efforts to level economic disparities would result in a loss of individual incentives and diminish the overall prosperity of society. Have conservatives changed over the centuries?

The Center on Budget and Policy Priorities assert that “the bipartisan Child Tax Credit expansion in the tax bill negotiated by Senate Finance Committee Chair Ron Wyden and House Ways and Means Committee Chair Jason Smith takes an important step toward making the credit work for children in families with low incomes. While smaller than the American Rescue Plan credit expansion that expired at the end of 2021, the proposal’s top priority is getting more of the credit to most of the roughly 19 million children who currently get a partial credit or none at all because their families’ incomes are too low. The bipartisan proposal pairs corporate and small business tax provisions with Child Tax Credit improvements that cost a similar amount, reportedly about $35 billion for each set of proposals. With the exception of a modest indexing proposal, all of the benefits from the Child Tax Credit improvements go to children left out of the full credit because their families’ incomes are too low. The expansion would be in effect for three years. While modest in size, the proposal would have a significant impact. In the first year, more than 80 percent of the roughly 19 million children under 17 in families with low incomes who don’t now get the full credit would benefit— about 16 million children. This includes nearly 3 million children under age 3.”

In the first year, the proposal would lift as many as 400,000 children above the poverty line and make an additional 3 million children less poor as their incomes rise closer to the poverty line. These poverty-reducing effects would increase over time. When the proposal is fully in effect in 2025, it would lift some half a million or more children above the poverty line and make about 5 million more less poor. This would mark the beginning of a much-needed reversal of the sharp rise in child poverty that occurred in 2022, following the expiration of the Rescue Plan expansion of the Child Tax Credit and other COVID relief measures.

The proposal would benefit children of all races and ethnicities. Overall, more than 1 in 5 children under 17 would benefit in the first year. The expansion would particularly help Black, Latino, and American Indian and Alaska Native (AIAN) children, whose parents are overrepresented in low-paid work due to historical and ongoing discrimination and other structural barriers to opportunity. More than 1 in 3 Black children, more than 1 in 3 Latino children, 3 in 10 AIAN children under 17, and roughly 1 in 7 white children and Asian children under 17 would benefit from the proposal.

The proposal would deliver a meaningful income boost to millions of families in the first year. For example, consider a parent who has a toddler and a second grader and earns $15,000 working as a food server. In the first year, the family’s Child Tax Credit would increase by $1,725, from $1,875 to $3,600.

Half of the roughly 16 million children who would benefit under the proposal in the first year live in families who would gain $630 or more. For nearly 40 percent of children who would benefit, their family’s gain would be $1,000 or more, and 25 percent of children are in families who would gain more than $1,400 in the first year. The gains for low-income families with more than one child— roughly three-quarters of children in low-income families are in this group— would be particularly large. Among children who live in families with more than one child and who would benefit, half are in families who would gain $1,000 or more in the first year. For families who don’t now get the full credit because their incomes are too low, the gains would be larger when the proposal is fully in effect in 2025.

Three important structural improvements to the Child Tax Credit’s design drive these gains:

• Moving to a “per-child” phase-in to ensure low-income families receive the same credit for each of their children, as higher-income families already do;

• Increasing and then effectively ending in tax year 2025 the lower maximum credit amount (known as the “refundability cap”) that only limits the credit for families with low incomes; and

• Allowing families to use their earnings from either the current year or the year before when calculating the Child Tax Credit so if their incomes drop— because they lost a job, faced health or caregiving needs, or welcomed a new child— their Child Tax Credit doesn’t fall as well (this is called a “lookback” provision and would start in tax year 2024).

…As part of the bipartisan compromise, the package includes three corporate tax cuts that reverse, in whole or in part, provisions originally enacted in the 2017 tax law to offset some of the cost of that law’s large cut in the corporate tax rate.

Specifically, the compromise would return to immediate expensing of research and experimentation costs (R&E) for domestic research expenditures, return to full expensing for capital investments, and provide more generous deductions for interest expenses. As we highlighted previously, each of these provisions has issues from our perspective— both in terms of substantive policy and gimmicky timing effects that mask their true costs— but these compromises were necessary to get a bipartisan deal. Both the corporate provisions and the Child Tax Credit provisions would be in place for three years— for tax years 2023, 2024, and 2025— expiring at the end of 2025 like many tax provisions from the 2017 tax law.

…Under current law, many low-income families with two or three children receive roughly the same total credit as a family with one child at the same earnings level. The expansion would provide each child in a family with their own same-sized credit, just as in higher-income families. This improvement is particularly significant because across all income levels, a large majority of children live in families with two or more children. That’s true for families with low incomes as well — some three-quarters of the 19 million children currently left out of the full credit live in families with more than one child.

Under the proposal, the Child Tax Credit would still phase in at a 15 percent rate based on earnings above $2,500, but that formula would now calculate the per-child amount of the credit, rather than the family’s total credit.

Consider a single parent with two children who earns $13,000 working part time as a home health aide. Under current law, the family receives a credit of $1,575— 15 percent of $10,500, their earnings above $2,500.

Under the proposal, they would receive $1,575 per child— or $3,150, meaning the family’s credit would double.

Under the proposal, most low-income families with more than one child who would benefit from the proposal— whether they have single or married parents— would see their credit rise significantly. Half of all children who live in families with more than one child and who would benefit from the proposal would see their families gain $1,000 or more in the first year. This includes almost all such children in families whose parents earn between about $10,000 and $20,000.

…The Rescue Plan expansion of the Child Tax Credit was significantly larger than the expansion under the bipartisan proposal. It provided the full credit to children in low-income families regardless of their families’ earnings, increased the maximum credit markedly, and provided the credit on a monthly basis. This more expansive proposal lifted significantly more children out of poverty than the bipartisan proposal would and ensured that children in low-income families received the same credit as children in higher-income families.

Ultimately, the Child Tax Credit provisions in the Rescue Plan are what is needed to drive child poverty down sharply. Even short of the full Rescue Plan expansion, a larger proposal could have provided the full current law $2,000 credit to children in low-income families regardless of earnings, but House Republicans rejected so-called “full refundability” in the negotiations. In a modestly larger package, the credit could be phased in more quickly by ending the disregard of the first $2,500 in earnings when calculating the per-child credit and by increasing the 15 percent phase-in rate, if bipartisan agreement could be reached.

Within a roughly $35 billion, three-year package the bipartisan compromise proposal is well-targeted, directing all of the benefits outside of the modest indexing provision to children now left out of the full credit because their families’ earnings are too low.

…This bipartisan proposal puts its Child Tax Credit priorities where they belong: focused on the roughly 19 million children who today are left behind because their families’ incomes are too low. This proposal would increase the credit for more than 80 percent of these children— about 16 million children— lifting as many as 400,000 children above the poverty line in the first year and making an additional 3 million children less poor. When fully in effect, the proposal would lift some 500,000 or more children above the poverty line and make about 5 million additional children less poor than if the current credit remained in place.

The package would deliver meaningful help. For example, a family getting an additional $1,000 in the Child Tax Credit can use that money to buy school clothes or diapers, repair a car, or pay utility bills.

The number of children living in families with incomes below the poverty line increased by 5 million between 2021 and 2022, when most COVID relief measures, including the expanded Child Tax Credit, expired. Much more will need to be done to fully reverse this increase— and if there are opportunities to strengthen the proposal to improve its impacts for children in families with low incomes, that would of course be preferable. But this bipartisan compromise takes a meaningful step forward and is likely the only opportunity this year to substantially reduce the nation’s unacceptably high number of children living in poverty.

After just one day, conservatives are already bitching about it. Reporting for PunchBowl, Laura Weiss and Brendan Pedersen wrote that reactionary Mike Crapo (R-ID), the ranking Republican on the Senate Finance Committee wants changes. Obviously “he backs reviving business tax benefits and is open to ‘an appropriate child tax credit set of provisions,’ but has issues with the package as-is.” The idea of helping poor families isn anathema to Crapo and others like him.

They added that “the National Association of Manufacturers is launching ads today in multiple Kentucky papers and the Shreveport Times in Louisiana. They’re targeting (you guessed it) Senate Minority Leader Mitch McConnell and Speaker Mike Johnson as part of a push to get the Wyden-Smith deal over the finish line. They urge readers to thank each chamber’s top Republican for ‘standing up for manufacturers’ and say that their companies need the revival of three business tax benefits.”

I don’t see Trump allowing MAGA members of the House to ever agree to anything like this. No one is calling it dead on arrival… except me. The MAGA agenda isn't for Congress to get anything done. The agenda is for Congress to not accomplish anything. I doubt MAGA Mike will ever even allow this to come to a vote in the House. He didn't get the job to compromise; he got the job to allow Trump to make the case that chaos and dysfunction are Biden's fault and only Trump can fix it.