money Child Tax Credit: Democrats look to extend 'transformational' expansion
The Biden administration is trying to extend the expanded Child Tax Credit through 2025 and permanently keep in place a key provision that helps low-income families. The moves could prove popular.
Under President Joe Biden’s $3.5 trillion, 10-year spending plan, the increased tax credit and the advance monthly payments would continue through 2025, while the credit would be made fully refundable permanently.
“Biden proposed to make the most critical part for child poverty permanent,” Robert Greenstein, a fellow at the Brookings Institution, told Yahoo Money. “There is a real distinct possibility that that is indeed what Congress could do and that would be transformational.”
The one-year expansion of the credit has the potential to cut child poverty by more than 40%, according to the Center on Poverty and Social Policy at Columbia University. Additionally, society is estimated to reap $794 billion in benefits from the one-year expansion, or nearly eight times the $100 billion price to implement it.
While the increased credit amount contributes to the reduction in poverty, making the credit fully refundable — meaning that taxpayers receive a refund even if the credit exceeds their total tax bill — is the biggest differentiator, according to Greenstein. When the credit wasn’t fully refundable, the families of 27 million children under age 17 didn’t qualify for the full credit because their earnings were too low, according to the Urban Institute.
“If the full refundability isn't made permanent now, that part could well disappear,” Greenstein said. “If that part disappeared, then the child poverty reduction would go to zero at the point where it does disappear.”
‘Almost certain that the Child Tax Credit improvements will be extended’
The framework of the Democrats' $3.5 trillion budget proposal was approved by the Senate last week and is now in committees.
Democrats are looking to pass the final legislation through reconciliation in the Senate, a process which would require a simple majority of 51 votes. Even if Democrats in the Senate don’t get any Republican support, the legislation can still become law as long as all Democrats vote for it.
Read more: Taxes 2021: Credits, deductions, and tax breaks for student loans and college costs
But to get all Democrats on board, some of the details might be changed as part of the negotiations.
The price tag for the expansion of the credit until 2025 is approximately $450 billion, but Democrats may scale down the proposal and extend it to only 2024 as part of the negotiations, according to Greenstein.
“I think the odds are better than 50/50 that this will happen and the bill will be enacted before the end of the year,” Greenstein said. “If enacted, it’s almost certain that the Child Tax Credit improvements will be extended to at least 2024.”
‘There's a very strong chance that continues indefinitely’
The expanded credit so far is widely popular among parents.
Around 82% of parents with kids under 18 agree that the monthly Child Tax Credit payments should be extended past 2021, according to a recent survey of 1,013 parents by MagnifyMoney. Approximately 90% of those who identified as Democrats said they wanted the payments extended, while 76% of Republicans also agreed.
Part of the measure’s popularity stems from stagnated wages that many middle- and low-income families have seen in recent decades, especially as childcare costs increased, according to Greenstein.
The majority of the benefits from the expanded credit target those same families.
Households that earn less than $50,000 are estimated to get around 60% of the $100 billion in funding for the one-year extension of the program, according to the Center on Poverty and Social Policy’s analysis, averaging out to $3,757 per family.
Even if the credit expansion is extended for just a few years, politicians may face pressure to extend again down the road to avoid levying a tax hike on middle- and low-income families, according to Greenstein.
“If you raise the dollar amount per child, there's a very strong chance that continues indefinitely,” he said. “Neither party is likely to want to be responsible for cutting a credit that virtually goes to children and families in the entire middle class.”
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
