Lawmakers are considering legislation that would reinstate and make permanent the monthly child tax credit (CTC) payments introduced in the 2021 American Rescue Plan. In a hearing held on July 13, the Senate Subcommittee on Taxation and IRS Oversight assessed the 25-year history of the CTC.
Under the American Rescue Plan, monthly payments of $300 per child under age 6 and $250 for each child aged 6 through 17 were distributed during the COVID-19 pandemic. However, this provision expired at the end of 2021, and efforts to extend it did not succeed, despite a Democratic-controlled Congress.
Representative Rosa DeLauro (D-Conn.) stated that the expanded and improved CTC was the largest tax cut for working families in generations. She highlighted that the measure benefited over 61 million children and lifted nearly 4 million out of poverty in 2021 alone. Last month, DeLauro, along with Representatives Suzan DelBene (D-Wash.) and Ritchie Torres (D-N.Y.), reintroduced the American Family Act, which aims to reinstate the monthly payments.
DeLauro emphasized the positive impact of the expanded CTC, stating that it provided economic security for American families. The monthly payments helped parents with various expenses, from bills and food to school supplies and extracurricular activities. DelBene echoed these sentiments, calling the enhanced CTC a transformational policy that reduced child poverty by half and supported parents in meeting essential needs.
The proposed legislation, which currently has 210 co-sponsors, also includes a new feature called a “baby bonus” that would increase the credit to $2,000 in the month a baby is born. Families with children aged 6 and under would receive a $300 monthly payment, while those with children aged 6 to 17 would receive $250 per month.
The Child Tax Credit was initially created as part of the 1997 Taxpayer Relief Act and has been expanded several times with bipartisan support. Senator Michael Bennet (D-Col.), chair of the Subcommittee on Taxation and IRS Oversight, highlighted the history of bipartisan cooperation in expanding the CTC. Republican lawmakers, including those in Newt Gingrich’s “Contract with America” in 1994, were among the first to embrace the CTC. President George W. Bush also worked with Democrats and Republicans to make the credit refundable for low-income families.
Notably, the 2017 tax cuts introduced by President Donald Trump increased the maximum size of the CTC to $2,000 and expanded its availability to wealthier families. Bennet encouraged lawmakers to support the proposed legislation to make the CTC monthly payments permanent and expand access.
During the hearing, Senator John Thune (R-S.D.) expressed his support for the CTC but raised concerns about making the American Rescue Plan measure permanent. He cited issues such as the strain on IRS resources, refund delays, surprise tax bills, and the removal of the credit’s tie to working and earning a basic amount of income. Thune argued that these changes essentially turned the credit into universal basic income for anyone with a child, potentially discouraging workforce participation.
Experts testified on the benefits and challenges of the CTC. Katherine Michelmore, an associate professor at the University of Michigan’s Gerald R. Ford School of Public Policy, highlighted that the current structure of the CTC prevents approximately 19 million of the poorest children in the U.S. from receiving the full credit. Indivar Dutta-Gupta, the president and executive director of the Center for Law and Social Policy, emphasized the negative impact of poverty on children’s future prospects.
However, there are some detractors of making the CTC monthly payments permanent. Kevin Corinth, deputy director for the American Enterprise Institute’s Center on Opportunity and Social Mobility, expressed concerns about the increased cost and its potential contribution to high inflation. He also argued that making the payments permanent could lead to an estimated 1.5 million parents exiting the workforce and jeopardizing other work-incentive tax credits.
In conclusion, while lawmakers debate the future of the child tax credit, the proposed legislation aims to reinstate and make permanent the monthly payments introduced in the American Rescue Plan. Advocates argue that the expanded CTC has been instrumental in reducing child poverty and providing economic support to working families. However, there are concerns about the strain on IRS resources and potential disincentives to workforce participation. Ultimately, the decision will require further deliberation and consideration of the potential impacts on families, the economy, and government resources.