Meeting Manchin in the middle on the Child Tax Credit

Greg Nash, AP-Alex Brandon

Final negotiations over the Build Back Better Act hit a near-fatal roadblock, with Sen. Joe Manchin (D-WV) declaring that he could not vote for the bill. But the senator’s proclamation could be the smelling salt Democrats need to finally hear what he has been saying for months about the legislation’s price tag, its scope, and particularly its Child Tax Credit changes that would extend temporary expansions implemented earlier this year under the American Rescue Plan. In particular, the senator has repeatedly taken issue with the proposed straight extension of the expanded credit, including severing its connection to work, its lack of targeting, and its well-over $1 trillion price tag over the next decade.

The CTC has historically been a hallmark of bipartisan success, assisting families with the cost of raising children and providing adequate resources for healthy development. Established in 1997 under President Clinton, it was subsequently expanded under each president since. Indeed, President Biden temporarily augmented the CTC for 2021 by providing the full credit to households with little or no earnings, boosting the maximum credit for most families to $3,000 per child (and $3,600 for children aged five or younger), and providing a portion of this year’s credit monthly instead of holding the full amount until tax filing season. Absent action from Congress, parents will see these additional provisions disappear in January.

If lawmakers are serious about the urgent need to deliver support to struggling families, the CTC should be permanently expanded and improved. It’s now clear, however, that Democrats need to seek out a practical middle ground that involves more cost-effective targeting, support for all families while retaining work incentives, and most importantly — a durable program that can survive either Democrats or Republicans being in control. In fact, moderate Republicans, including Sen. Mitt Romney (R-Utah), continue to call for CTC collaboration across party lines, leaving that as an option should the program not make it across the finish line in the BBB package.

Either way, the band-aid that first needs to be ripped off is the program’s cost. The credit is poorly targeted, with married households who earn $400,000 a year still receiving $2,000 per child. Biden’s ill-advised tax pledge to hold harmless the 98 percent of households making under $400,000 should not prevent policymakers from striking a deal. Democrats should at least lower the CTC phase-out thresholds to $150,000 for single parents and $200,000 for couples. They could further offset costs by aligning with Republicans to permanently curtail the dependent exemption, which will reappear in 2025 when the Tax Cuts and Jobs Act of 2017 provisions expire.

Another shortcoming of the CTC is that it has traditionally provided little or no support to those families most in need. Prior to this year, it had not been available to the millions of households with children but without earnings, and only $1,400 of the full $2,000 per-child credit was available to households without federal income tax liability (which could, for example, include a single mother earning minimum wage). Congress can reach compromise by designing a CTC that replaces its refundability cap with a nearly universal monthly allowance — a portion fully available regardless of earnings — and an additional monetary incentive for labor force participation. This is important because, as evidenced by the Earned Income Tax Credit, rewarding work is a powerful tool that can support low-income families’ finances: Nearly half of the EITC’s poverty alleviation comes from drawing people into the workforce and encouraging workers to increase their hours, building not only their long-term earning potential but also immediate financial support to help their children escape poverty.

The solutions outlined here, embodied in a package of reforms from the Bipartisan Policy Center, can bring Democrats and Republicans together to provide financial support to low-income families historically excluded from the CTC, promote work, and set the expansion of the credit on a fiscally responsible foundation. If lawmakers can settle their differences — whether with Manchin in BBB, or better yet, across party lines thereafter — this represents a rare opportunity to dramatically and persistently reduce child poverty while still meeting other policy objectives. 

Politicians have sharp elbows when it comes to negotiations and it’s easy to talk past one another, but American parents and their children are counting on a solution now. Lawmakers have everything to gain and nothing to lose by sharing a vision for an improved CTC that can politically and substantively stand the test of time.

Shai Akabas is director and Rachel Snyderman is associate director of economic policy at the Bipartisan Policy Center.

Tags American Rescue Plan Act Build Back Better Act Build Back Better plan Child tax credit earned income tax credit Joe Biden Joe Manchin Joe Manchin Mitt Romney Presidency of Joe Biden Tax credits

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