To address educational opportunity gaps, the United States will need to help families with children overcome poverty. Staff at the Center on Budget and Policy Priorities (CBPP) have just released precise instructions for Congress to take a major step for accomplishing this goal.
Before year’s end, “policymakers will have the opportunity once again to expand the Child Tax Credit… Indeed, Congress will likely consider tax legislation during this time, as business interests are pressing for corporate tax breaks that would undo some of the modest business tax increases that were enacted as part of the 2017 tax cuts, which gave extremely large net tax cuts to corporations. Expanding the Child Tax Credit is more important than undoing a few provisions of the 2017 tax law that were used to offset some of the massive corporate tax cuts. At a minimum, policymakers should not enact any year-end corporate tax breaks without expanding the Child Tax Credit.”
The Center on Budget and Policy Priorities is specific about what part of the Child Tax Credit must be fixed: “The current Child Tax Credit has a major design flaw: millions of children are prevented from receiving the full credit because their families’ incomes are too low. In total, an estimated 19 million children under age 17 receive less than the full $2,000-per-child credit or no credit at all because their families’ earnings are too low or because the adults were out of work that year…. This is because the credit phases in with earnings at 15 cents per dollar, for earnings above $2,500, and the refundable portion of the credit (the amount a family can receive if their credit exceeds their income tax liability) is capped at $1,500 per child. This slow phase-in rate results in the children whose families most need the credit receiving a smaller credit than children in families with higher incomes, or no credit at all. Furthermore, the credit phases in largely based on income, not the number of children a family has. So, a family with low income often receives the same total credit whether they have one, two, or more children, whereas families with higher incomes receive $2,000 per child.”
In policy-speak, the required change would make the Child Tax Credit fully refundable. “The vast majority of parents who are denied the full credit work, but their earnings are low enough that they can only get a partial credit, and not the full $2,000-per-child credit that families with higher earnings get.”
The policy language is a little complicated, but here is the example the Center on Budget and Policy Priorities provides: “(A) single mother with a toddler and a second grader, who earns $15,000 as a home health aide helping older adults meet their basic needs, would (under today’s law) receive a total of $1,875 in Child Tax Credit, less than what other families would receive for just one child. In contrast, a family with two children and earnings of $150,000 would receive the full $2,000 per child, or $4,000 in total. In fact, families with much higher incomes—including married couples with incomes of up to $400,000—get the full credit for each child, while the lowest-income families are partially or completely shut out of the credit.”
“In the example described above of the home health aide with two children, the family receives less than half of the maximum Child Tax Credit under current law. Even a parent working full time as a cashier at a wage of $10 per hour, earning $20,000 per year, would not earn enough to get the full credit for two children.”
For six months in 2021, under the American Rescue Plan, Congress made the full Child Tax Credit available to families with low or no income. Congress also increased the amount of the Child Tax Credit for each child. The Center on Budget and Policy Priorities assumes that this year Congressional deliberations will be intense and prescribes the one reform that would make the most difference. Increasing the amount of the credit per child is not so important as making the full tax credit fully available for the poorest families with children:
“Making the full $2,000 credit available to these children would substantially lower poverty, reducing the number of children living in a family with income below the poverty line by roughly 10 percent—or about 1.7 million children—in 2022 relative to current law. By contrast, increasing the maximum credit amount without making the credit more available to the lowest-income children would do far less to lift children above the poverty line, and at a higher cost than making the credit fully refundable (to the poorest families). To make the greatest impact on child poverty, any future expansion should prioritize expanding the credit to children in families with low incomes.” The new report adds: “Increasing the maximum size of the credit, after making it fully available, would further reduce child poverty. But if policymakers increase the maximum credit amount to the Rescue Plan levels without making the credit fully available… the number of children in families with income below the poverty line would fall by just 2 percent—or just 222,000 children… at more than twice the cost of making the $2,000 credit fully available (to the poorest families with children).
Which families would benefit from making the Child Tax Credit fully refundable? “The estimated 19 million children under 17 who do not receive the full credit are disproportionately Black, Latino, and American Indian or Alaska Native…. Due to historical and ongoing racial discrimination, many people of color are overrepresented in low-paid work and face more limited economic opportunities… The credit’s current structure also disproportionately disadvantages children who live in rural (that is, non-metropolitan) areas. An estimated 32 percent of children under 17 living in rural areas receive less than the full credit or no credit at all because their families’ incomes are too low or because the adults were out of work this year, compared with a still sizable 26 percent living in metro areas, largely because pay is generally lower in rural areas.”
Why must Congress act before year’s end? “Poverty and the hardships that come with it—unstable housing, frequent moves, inadequate nutrition, and high levels of stress in the family—can take a heavy toll on children; they are associated with lower levels of educational attainment, poorer health in adulthood, and lower earnings in adulthood.”
The new report from the Center on Budget and Policy Priorities is an urgent call to action. I encourage you to let your U.S. Senator and Congressional Representative know that you believe making the Child Tax Credit fully refundable should be a top priority for Congress this year.