It isn’t often that a shift in federal tax policy has an immediate, positive and widespread impact on America’s struggling working families. And it’s perhaps even more rare in today’s fractious political environment that both parties can get together to make that happen.
Yet it appears Congress is headed toward exactly that kind of breakthrough with a plan to revive the Biden administration’s pandemic-era child tax credits — a brief policy that ushered in an unprecedented reduction in child poverty levels before it was allowed to expire two years ago. Bringing it back would help both working families and the broader economy.
The child tax credit as applied prior to its pandemic expansion provided taxpayers with children up to $2,000 off their tax bills. But the credit wasn’t fully “refundable,” meaning lower-income families that paid little or nothing in taxes couldn’t fully access it.
The result was a tilt in benefits toward the wealthy. The Brookings Institute estimated that prior to its pandemic expansion, about 40% of the child tax credit benefits went to households with incomes above $100,000, with only about 15% of those benefits going to households with under $30,000 income.
The Biden administration’s American Rescue Plan in 2021 boosted the child tax credit to a maximum of $3,600 and — crucially — made it fully refundable, meaning families that earned too little to owe taxes still received the full benefit.
The results were epic. The policy ushered in a record low in America’s child-poverty level, to just 5.2%. When Congress allowed the expanded tax credit to expire at the end of 2021, that rate shot back up above 12%.
The current measure would restore the fully refundable tax credits (though at lower levels than the earlier boost) and would revive some expired Trump administration business tax cuts.
Co-sponsored by Missouri Republican Rep. Jason Smith, who chairs the powerful House Ways and Means Committee, and Senate Finance Committee Chairman Ron Wyden, D-Oregon, the $78 billion proposal has about as much bipartisan muscle behind it as anything pending in Washington these days.
The White House supports the legislation. Smith’s committee last week passed the measure overwhelmingly and it’s expected to be taken up by the full House in the coming weeks.
Putting money in the pockets of families that have unmet needs will spur more economic activity than the GOP’s discredited supply-side strategy of coddling the wealthy.
And more to the point: Raising children is the most important — and expensive — thing most Americans will ever do. That burden is especially acute for lower-income working families. America’s tax code should permanently recognize that reality.
