By: Lawrence McGlynn, WPPM/PhillyCAM
The child tax credit, which helps millions of Americans and more than 100,000 Philadelphia families, could see an increase and overhaul under the Biden/Harris administration that would benefit families living below the poverty line the most.
The child tax credit’s current iteration provides a credit of up to $2,000 per child younger than 17, $1,400 of which is available as a refund even if the filer does not owe federal income tax. Children aged 17 to 18 and college students up to 24 are eligible for a $500 nonrefundable credit.
But to get the credit at all, the IRS says a family must earn at least $2,500 a year and the credit is phased in, so many families living in poverty get less than $1,400 per kid.
President-Elect Biden says he wants to expand the credit to $3,600 per child younger than six, and $3,000 for children aged seven to 17. Coupled with the increase, the Biden plan would make the credit fully refundable and fully available, regardless of income.
Instead of making families wait until they file their taxes, the new administration also proposes giving the credit in monthly $300 payments.
Mai Miksic, director of early childhood policy at Public Citizens for Children and Youth, said making the disbursement of the credit monthly as opposed to annually would make a significant difference for families.
“This would allow them to pay for daily living expenses in a more reasonable way,” Miksic said. “It just seems like common sense to give them an extra $300 a month to pay for groceries.”
However, how these funds would be distributed monthly is still uncertain. The Biden transition team has not provided details of how it would carry out these monthly payments.
Bipartisan support, uneven benefits
The child tax credit is one of the few legislative items that enjoys bipartisan support in Congress. Democrats favor it because of its proven ability to help with the costs of raising children. Meanwhile, Republicans doubled the child tax credit from $1,000 to $2,000 as part of their large tax overhaul that was signed into law in 2017.
Christine Speidel, assistant professor of law and director of the Federal Tax Clinic at Villanova University, says even dropping income requirements would leave out some families.
“Immigrants whose children do not have Social Security numbers are shut out,” Speidel said. “A few years ago, Congress tweaked the statute that required [Social Security numbers]. We definitely saw clients for whom that was a really hard surprise.”
Kris Cox, senior tax policy analyst with the Center on Budget and Policy Priorities, says the way the tax credit is phased in diminishes the impact on families struggling the most.
“Right now, a major flaw of the child tax credit is that low-income families do not receive the same amount of credit as higher-income families,” Cox said. “Over 27 million children receive only a partial credit or no credit at all because their parents earn too little.”
With the full credit not available to families earning less than $2,500 and then getting phased in, a single parent with two children earning less than $9,000 per year would receive a tax credit of only $975, while a married couple with the same number of children earning $400,000 would receive the full $4,000.
An estimated 890,000 children in Pennsylvania only qualify for a partial credit (an estimate for Philadelphia families is not available).
A small share of the budget
Even if expanded to $3,600 for the youngest children, Deborah Figart, professor of economics at Stockton University in South Jersey, does not see it as enough when considering everyday costs for items such as food, diapers, and baby formula, and, for many, the costliest expense of all: child care.
“Infant and childcare [costs] are through the roof,” Figart said. “Toddler care is easily as much as college tuition, so you’re burning the candle at both ends. You’re paying the equivalent of college tuition for an infant to age five, and then ages 17 to 21. How are you going to save for your own retirement? This is why the middle class is totally squeezed.”
According to the Urban Institute, a nonprofit research organization, federal spending on children accounted for only 9% of the federal budget, including direct spending and tax credits, while 45% of federal expenditures pay for programs designed for older people, such as Social Security.
Elaine Maag, a principal research associate in the Urban-Brookings Tax Policy Center at the Urban Institute, sees this spending on children as an investment in future human capital but notes the disparity in spending between children and older Americans.
“So one, somewhat cynical answer is that children don’t vote,” Maag said. “And so they are not a strong voice that is lobbying Congress regularly. That’s different than older Americans, for example, who are a very strong group of voters and might have been able to leverage that behavior to get better policies for them.”
The benefits to children go beyond their material needs — better financial footing earlier in life can have long-lasting effects.
“The research is really good that when we get money to low-income children, particularly when they’re very young, it delivers a lifetime of benefits,” Maag said. “This includes better health outcomes, better test scores, [they’re] more likely to have a higher-paying job in the future; all of these little things that come together that can eventually provide really big benefits not just for those individual children, but for society as well.”
According to Cox, each dollar from a fully refundable child tax credit would contribute $1.08 to the larger economy.
“That’s why making the child tax credit fully available to very low-income children, regardless of their parents’ earnings, would have a higher yield for the economy and would be more likely to stimulate economic growth,” Cox said. “And in those dollar figures, we typically think that anything less than $1 is less effective and more than $1 is more effective at stimulating the economy.”
In Philadelphia, where 26% of the population lives in poverty, including 126,000 children, an expanded child tax credit could be a significant boon to local families, particularly during the economic recession caused by the COVID-19 pandemic.
“When you begin moving people from poverty, you begin seeing less pressure on emergency healthcare systems because people are able to access regular health systems,” Maag said. “You’ll see school attendance might go up. [Children] will have access to high-quality childcare which will benefit them [long-term].”