A Bipartisan Path to Extending the Expanded Child Tax Credit
Families found much-needed help in the expanded Child Tax Credit, passed into law as part of the American Rescue Plan Act last year. The previous credit of $2,000 per child ($1,400 of which was refundable) was expanded to $3,000 per child ($3,600 for children under 6) and the expanded credit was made fully refundable for 2021. But just as parents were coming to depend on monthly payments of up to $300 per child under age 6 and $250 per child ages 6 to 17, the expanded credit expired at year’s end. Senate Democrats so far seem unable to find a way forward, but Rachel Snyderman, associate director for economic policy at the Bipartisan Policy Center, believes there may be a bipartisan path to extension. Snyderman spoke with Spotlight recently about the center’s work on identifying areas for bipartisan agreement on the CTC. The conversation has been lightly edited for clarity and length.
Why don’t we start with, why is it so important that the expanded Child Tax Credit be renewed?
First let’s take a step back and remember that the Child Tax Credit, while expanded greatly in 2021, will not expire this year. It’s just that the temporary expansion that was implemented in 2021 under the American Rescue Plan Act was for one year only, and at the expiration of those extended benefits in December last year, we reverted back to the previous version of the credit that was expanded in 2017. But yes, it’s important to understand and emphasize just how significant the impact has been over the past year from the expanded Child Tax Credit — the impact it has had on child poverty. Many ongoing studies continue to assess the impact, and the positive results we’re seeing are going to make it very hard for policymakers to retreat from the great progress made in combating child poverty.
And bring us up to date on the latest status of an extension. The credit was in the Build Back Better legislation that now appears to be on ice. What’s your view of the state of play?
The House-passed version of the Build Back Better Act included a one-year, temporary extension of the Child Tax Credit that was expanded [in the American Rescue Plan Act] last year, in addition to permanent refundability of the credit, which would be a significant change. But as to where the debate stands, it’s currently stalled in the Senate. We’re seeing that there are disagreements between Senator (Joe) Manchin (D-W.V.) and the White House about the direction of the Child Tax Credit. The central issues surrounding this debate are primarily related to work incentives and the credit’s cost. Senator Manchin has staked out his position on the need to prioritize and promote incentives to work and also that this has to be a program that we as a nation can afford. If the Child Tax Credit, as outlined in the American Rescue Plan, was extended over a 10-year window it could cost up to $1.6 trillion according to the Congressional Budget Office—the entire cost of the Build Back Better agenda alone is estimated to be about $1.75 trillion. Main areas of focus should be ensuring an expanded credit reaches and targets caregivers who need the most support and that we have a program that can retain long-term bipartisan support. Certainly, my hope is that’s not too difficult for Congress to achieve.
I know BPC has done a lot of work on this, so let me start with the substance. What are some of the parameters of a potential bipartisan compromise? What would be the key areas that you think the two sides could come together on?
It’s a great question. I think it’s important to remember that the Child Tax Credit has had strong bipartisan support since its creation in 1997. It’s actually been expanded under every president since its enactment, under White Houses and Congresses of both parties. So, there is a wide belief, certainly at the Bipartisan Policy Center and among others working closely on this issue, that there are some key elements that could further promote its historical bipartisan success.
For example, these include better targeting the credit to those households and caregivers who need the most assistance—ensuring that it’s reaching folks who really need help to cover childcare needs, tuition, books and supplies, diapers and formula, among others, the basic necessities that come with caring for a child. Revisiting the income thresholds at which eligibility for the credit phases out is another option. Consideration of removing the credit’s refundability cap, matched with incentivizing work, are areas where we could also see bipartisan agreement along these lines. This could make a portion of the credit available to households regardless of their earnings, but then include an incentive for caregivers to want to enter the labor market and some reward for doing so but having the remainder of the credit phase in with earnings. And so, we are looking at modeling a credit that can provide a baseline level of support to families while incentivizing individuals to not only enter the workforce, but then to also seek higher paying jobs, for example. Another element is that the costs for raising younger children are different than they are for older children, and that these costs also differ from household to household, so the option to allow caregivers a choice between a monthly allowance of the credit or claiming it in a lump sum at tax time should be on the table.
And then finally, any compromise for many lawmakers is going to come down to cost. How can the program be sustainable, something that can really stand the test of time, one that can have a solid bipartisan foundation, so we don’t have to worry about tax policies changing every which way every few years? When it comes to the Child Tax Credit, those changes can create such financial uncertainty and hardship for families, especially at tax time, when they are trying to figure out how large their refund will be and what expenses they’ll be able to cover. These are some of the broad elements that we think are central to the credit’s foundational purpose and have been tinkered with on a bipartisan basis over time. These are the issues we need to bring the discussion back to so that there’s an opportunity for both parties to come together.
And do you see any signs of that happening? Republicans like Senators (Marco) Rubio (R-Fla.) and (Mike) Lee (R-Utah) have made proposals about the credit in the past and Senator (Mitt) Romney (R-Utah) had a fully fleshed out proposal last year. Do you seen signs of engagement on the Republican side?
I’m optimistic that there can be bipartisan cooperation, especially given some of the statements from Republicans that we saw after Senator Manchin voiced his concerns to the Build Back Better Act in its current form, largely due to the Child Tax Credit proposal. I think that if we divorce this issue from a partisan process and there is an opportunity for lawmakers to really have a concerted bipartisan discussion and debate on the future of the tax credit, that could certainly be one way forward. But I think as long as the discussion is solely within the Democratic caucus, I think it kind of, unfortunately, closes the door for those potential bipartisan discussions. Now, that’s not to say that it’s impossible. I think that a separate conversation on the future of the Child Tax Credit could yield other opportunities for bipartisan cooperation and discussion.
And do you think it’s fair to say at this point that at least on the substance, that the evidence is pretty clear that the expanded Child Tax Credit has been enormously successful in terms of lifting up families? That doesn’t address concerns about the budgetary impact or the impact on workforce development and participation in the work force, but the data seems to be clear that it’s been a successful policy.
Especially in the past year, given the fact that the American Rescue Plan Act’s expansion created a path for so many more low-income families to access the credit, that’s what we’re seeing in the data. And so again, I think that that’s going to be a hard place for lawmakers to go back from. You’re now reaching a new group of beneficiaries. How can policy better help these families prosper economically? How can it better help prepare their children for long-term success? Lawmakers can enact sensible, long-term policy that can really help those who need the most assistance.
I am optimistic that there’s an opportunity here. Given Republicans’ expansion of the Child Tax Credit in 2017, I do think that there are areas where Democrats could meet Republicans halfway. Whether that can be part of Build Back Better or a separate legislative process over coming months, only time will tell. There are opportunities really on both sides of the aisle for lawmakers to meet one another in the middle. But what we do know now is that families are waiting for clarity, particularly as tax filing season gets underway.