In 1997, Congress created a relatively modest tax break for people with children.
Now, a little more than 23 years later, the Child Tax Credit is poised to become the biggest break in the tax code.
As part of their coronavirus relief package, Democrats are proposing to almost double spending on the provision. They want to increase the maximum credit to as much as $3,600 for children under the age of six, from the current $2,000. And they’d allow people to begin claiming it as a monthly payment rather than having to wait until tax time each year.
It would amount to a guaranteed minimum income for parents, one that’s aimed at substantially reducing the number of children living in poverty.
The plan would ostensibly only be for the rest of this year, though that’s widely seen as a prelude to making the change permanent.
It would be a major expansion – but only the latest boost in a long string of increases. Few tax breaks have grown like the Child Tax Credit, with lawmakers beefing up the provision nine times since it was created.
Democrats’ plans would bring its total annual cost to well over $200 billion annually, dwarfing better-known breaks like the mortgage interest deduction and eclipsing the annual budgets of many federal agencies.
A big reason for the rapid growth: The credit sits in a particularly sweet spot in politics.
Aimed at the average American, it is perhaps the quintessential middle-class tax break. Lawmakers in both parties have long supported it, though they come at it from different angles. Republicans tend to emphasize the credit as a way to reduce the tax burden on families, while Democrats see it as a way to help low earners, regardless of whether they make enough to pay income taxes.
The result, though, is the same: The Child Tax Credit is the second-most widely claimed individual tax break, trailing only the deduction for charitable contributions.
Deficit watchdogs complain that, by shoehorning the plan into their coronavirus legislation, Democrats are ducking questions about its steep price tag.
“It does not belong in the coronavirus bill,” said Maya MacGuineas, head of the Committee for a Responsible Federal Budget.
The proposal appears headed for passage, with the House likely to take it up this week. Senate action still awaits, with lawmakers trying to get it to President Joe Biden’s desk by March 14, when expanded jobless benefits are due to expire.
The idea of giving people a special credit for their kids goes back to at least 1991, when the National Commission on Children — a panel set up by Congress to examine issues affecting youth — made a universal $1,000-per-child credit a centerpiece of its recommendations.
“If we measure success not just by how well most children do, but by how poorly some fare, America falls far short,” the panel said.
The idea quickly won bipartisan support in Congress. Then-Sen. Al Gore (D-Tenn.) introduced child tax credit legislation that year, and the proposal made its way into Republicans’ 1994 Contract with America. “We believe that parents ought to have the first claim on money to take care of their children rather than bureaucrats,” then-House Speaker Newt Gingrich (R-Ga.) said in 1995.
A couple years later, lawmakers created a $500-per-child tax cut that was mostly aimed at middle-class families.
Since then, every president has expanded it. As part of his 2001 tax cuts, George W. Bush doubled the credit and allowed low-income people to claim it, even if they didn’t owe income taxes, by instead receiving a check from the government. Barack Obama made it more generous for low earners.
As part of their 2017 tax cuts, Republicans again doubled the maximum credit to $2,000 and made it available to people further up the income ladder, earning as much as $400,000.
The credit costs an estimated $118 billion a year, according to official budget scorekeepers, and is claimed on more than 48 million tax returns.
Democrats still see plenty of need to expand the credit because it offers relatively little to the poorest.
The break works like a wage supplement, and is tied to people’s earnings, up to certain limits. So those making less than $10,000 get substantially less out of it than people earning, say, $35,000. About 6.7 million children live in families too poor to claim any of the credit, according to one analysis, and they are disproportionately Black and Hispanic.
“The way the current law is designed leaves out a bunch of kids who need the assistance the most and who, research shows, would benefit from it the most,” said Jacob Goldin, a Stanford Law School professor who co-authored the study.
Democrats would dump rules linking the break to people’s incomes and allow the poor to claim the entire credit regardless of how much they make – which would mean a dramatic increase in assistance.
“The bill includes the first year of what many experts said is a generational change in child poverty,” said Rep. Lloyd Doggett (D-Texas), a senior member of the tax-writing Ways and Means committee.
“This full benefit will be extended to families that were just too poor to get help in the past.”
The proposal is splitting Republicans.
While Sen. Mitt Romney (R-Utah) has endorsed a similar proposal, others like Sen. Marco Rubio (R-Fla.), a longtime advocate of the credit, is balking at plans to eliminate its work requirement. He says the Democrats’ plan amounts to little more than welfare.
“Being pro-family means being pro-work,” Rubio tweeted Monday.
As for the cost, Democrats are downplaying the price, with some saying the plan would only be for this year.
MacGuineas is skeptical, saying lawmakers will come under enormous pressure to extend it. She said she likes the idea of the expansion but, with the price tag likely to run more than $1 trillion over a decade, Democrats need to find a way to pay for it.
“I think the objective is one of the most important priorities in the country, I think the policy is a sound one, and I think the placement [in the coronavirus measure] is completely wrong,” she said.
“Pretending things are free is a problem.”
That’s not the only budget question surrounding the credit.
Republicans also made their 2017 expansion of the credit temporary. Beginning in 2026, the break is scheduled to automatically shrink back to how it looked before the Tax Cuts and Jobs Act: The maximum credit will drop to $1,000, and millions will suddenly become ineligible to claim it.
There’s lots of skepticism lawmakers will allow that to happen, but merely keeping the current rules intact is estimated to cost another $85 billion per year.
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How kids ate the tax code - POLITICO
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