This Democratic proposal could have a 'historic' impact on child poverty

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Experts say an expanded child tax credit would aid families who need it the most.

Democrats recently proposed a number of "very powerful" child tax credits that could lift millions of children out of poverty, experts told the American Independent Foundation this week.

On Monday, House Ways and Means Chair Richard Neal said his committee would consider several proposals of President Joe Biden's $1.9 trillion COVID-19 relief package.

One critical proposal, led by Neal, involves a one-year child tax credit expansion that would increase it from $2,000 to $3,600 for each child under 6 years old and $3,000 for each child between the ages of 6 and 17.

In a separate bill, Democratic Reps. Rosa DeLauro (CT), Suzan DelBene (WA), and Ritchie Torres (NY) re-introduced the American Family Act, which stipulates a permanent expansion of the child tax credit.

Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities, said in a phone call Monday that if the expansion were made permanent, it would "become a landmark," and "one for the history books."

Both proposals call for advanced monthly credits: $300 per month for children under 6 and $250 per month for children 6 to 17. Neal's proposal calls for the monthly payments to begin in July.

With the present tax policy, only those owing $2,000 or more in taxes would qualify for the full child tax credit. Those owing less than $2,000 do not qualify.

Additionally, according to personal finance company SmartAsset, an individual must have earned "at least $2,500 to qualify for the [credit]," which then "phases out for income above $200,000 for single filers and $400,000 for joint filers."

"The CTC is refundable up to $1,400. That means if you qualify for the CTC and it brings your tax liability (how much you owe) below zero, the IRS will send you the remaining amount of the credit" in your return, but only "up to $1,400," the company writes on its website.

"This has the effect of leaving [out] about 27 million children under age 17," Elaine Maag, a principal research associate at the Urban Institute's Tax Policy Center, said in an email.

Democrats' proposals remove the earnings requirement and make the entire amount of the child tax credit refundable.

The Center on Budget and Policy Priorities released a report on Tuesday finding the full $2,000 refund alone would "lift more than 3 million people — including 2 million children — above the poverty line," and "shrink the deep child poverty rate by almost a third."

Marr said the expanded child tax credit would lift an additional 4.1 million children out of poverty and cut the child poverty rate down by more than 40%.

Maag cited the Tax Policy Center's February model estimating that nearly 82% of families with children would benefit from the expanded child tax credit.

"On average, families with children will see their incomes rise by $3,270 from the proposal," she said.

Similarly, the Institute on Taxation and Economic Policy's January report found that the expanded child tax credit would benefit "roughly 83 million children" and "provide a 37.4 percent income boost to the poorest 20 percent of families with children who make $21,300 or less a year."

A January analysis from Columbia University's Center on Poverty and Social Policy found that Biden's $1.9 trillion relief plan, including the expanded child tax credit and other policies, would reduce child poverty by as much as 54%, equating to about 5 million children.

U.S. Census Bureau annual reports found that the Earned Income Tax Credit and child tax credit kept 7.5 million people out of poverty in 2019 and 8.9 million in 2018.

The proposals would also significantly impact communities of color. According to the budget center, the full child tax credit would lift "1 million Black, 1 million Latino, 850,000 non-Hispanic white, 120,000 Asian and Pacific Islander, and 70,000 Native American individuals, including children" out of poverty.

DeLauro's press release added that the bill is "estimated to cut child poverty by nearly 45%, cut Asian American & Pacific Islander child poverty by 37.0%, cut Black child poverty by 52.4%, cut Hispanic child poverty by 45.4%, cut Native American child poverty by 61.5%, and cut white child poverty by 38.6%."

"This is historic. This is a major, major change. It's been decades building up to this point," Marr said, adding that people are excited.

Elizabeth Lower-Basch, the Center for Law and Social Policy's Income and Work Supports director, called the changes "literally life-changing for children" and "incredibly important."

"This is a big deal," she said over the phone, adding that "it is very exciting" after pushing for it for so long.

Experts lauded the proposals' impact on the most vulnerable during the pandemic, helping "low-income families [to] meet their basic needs" when "food insecurity has roughly doubled," Maag noted.

Alexandra Cawthorne Gaines, the Center for American Progress' Poverty to Prosperity vice president, noted the proposals' long-term effects, saying, "research has found a $3,000 annual income increase for poor parents is associated with 19% higher earnings for their child once he or she grows up."

As the Washington Post noted, the measure's impact on "tens of millions of voters" could make it a "potentially defining feature of his (Biden's) administration’s economic agenda" and "lasting imprint on American welfare policy."

"Its execution could also prove crucial to deciding Democrats’ ability to maintain control of Congress," the outlet wrote.

Published with permission of The American Independent Foundation.