U.S. House Passes Child Tax Credit Expansion. Bill Heads to Senate.

For a long time, the needs of poor children have not been much of a motivator for American social policy reform.

Many of us remember Bill Clinton “ending welfare as we know it” in 1996, but we have very likely forgotten the title of the bill that ended welfare: the Personal Responsibility and Work Opportunity Reconciliation Act, a law whose name specifically blamed the poor for a lax attitude about bettering themselves through work.  The American Rescue Plan generously expanded the Child Tax Credit and made it fully refundable. That COVID relief bill, passed in March of 2021, reduced child poverty in the United States by 40 percent during that year, but Congress allowed it to expire at the beginning of 2022, when Joe Manchin and the majority of Congressional Republicans said the modest cash payments were discouraging parents from working. This month, the Washington Post reported another example of politicians punishing children for the supposed sins of their parents: Republican governors in 15 states have rejected a new, federally funded program to give food assistance to hungry children during the summer when school is not in session. Nebraska’s governor said: “I don’t believe in welfare.”

While a lot of politicians have shown themselves willing to overlook the well documented needs of millions of U.S. children, last night the U.S. House of Representatives passed a bipartisan compromise tax bill that combines business tax breaks and significant expansion of the Child Tax Credit. The bill will now move to the U.S. Senate.

The new bill is a carefully crafted three year compromise that pairs business tax breaks with help for 19 million children. The Washington Post describes the bill: “The bill would revive three business tax breaks favored by Republicans that have expired or started to phase out: bonus depreciation, research-and-development expensing and the net interest deduction. And it would make the child tax credit more valuable for low-income families with multiple children — although it wouldn’t increase the credit’s value… The bill would pay for extending the business tax breaks and the expanded child tax credit by ending the employee retention tax credit, a pandemic-era incentive for businesses to keep workers on their payrolls.”

How much does the bill passed by the House last night help America’s poorest children? The Center on Budget and Policy Priorities (CBPP) explains: “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.”

According to CBPP, there are three ways the new plan would benefit children in families with extremely low income: “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 bill does not make the Child Tax Credit fully refundable for families without income or those who earn too little to pay significant federal taxes.

The Center on Budget and Policy Priorities identifies the children who would receive assistance: “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.”

Designers of the American Rescue Plan’s 2021 Child Tax Credit expansion were motivated by a groundbreaking 2019 report from the National Academies of Sciences, Engineering, and Medicine, A Roadmap to Reducing Child Poverty, a report which concluded: “(P)overty causes negative outcomes for children, especially if it occurs in early childhood or persists through a large part of childhood… Given the evidence that poverty harms children’s well-being, policies designed to reduce poverty might be expected to have the opposite effect.”  The authors, led by child poverty expert Greg Duncan, identified one program likely to have the greatest impact: “(A) $3,000 per year child credit would reduce deep poverty by half.”

Kevin Welner, a professor of education at the University of Colorado and executive director of the National Education Policy Center, examines the impact of child poverty on our nation’s public schools: “Those of us who work in or with schools never question the enormous impact that a teacher or school can have on a student. But this essential truth coexists with another truth: that differences between schools account for a relatively small portion of measured outcome differences. That is, opportunity gaps in the U.S arise primarily outside of schools. This should not be a surprise. Poverty, concentrated poverty, and racialized poverty are pervasive features of America. School improvement efforts cannot directly help children and their families overcome decades of policies that perpetuate systemic racism and economical inequality. When children are born in the United States, their educational and life outcomes can all be predicted based on their parents’ education, income and wealth. Compared to the Scandinavian countries and other so-called Western democracies like Canada, Spain, Australia, and New Zealand, American children are inordinately trapped in intergenerational poverty. Inequality in the U.S. is stark and enduring.”

If it is passed by the U.S. Senate, the law the House passed last night would operate in tax years 2023, 2024 and 2025 (last year, this year, and next year). Then another tax law would need to be negotiated. On January 16, CLASP, the Center for Law and Social Policy released a statement declaring that this modest Child Tax Credit expansion is a good first step: “This compromise is a down payment toward a fully refundable and inclusive Child Tax Credit, one that our nation urgently needs… Passing this bill will position advocates for children and families well to fight for a truly just and evidence-based credit in 2025 when many of the provisions of the 2017 Tax Cut and Jobs Act expire.”