Just Taxes Blog by ITEP

Child Tax Credit Is a Critical Component of Biden Administration’s Recovery Package

Child Tax Credit Is a Critical Component of Biden Administration’s Recovery Package

April 27, 2021

Aidan Davis
Aidan Davis
Senior State Policy Analyst

Nearly one in seven children in the United States live in poverty and about 6 percent of all children live in deep poverty. President Joe Biden’s American Families Plan would tackle child poverty in an immediate, meaningful way. It is expected to extend the one-year Child Tax Credit (CTC) enhancements included in the March 2021 American Rescue Plan (ARP) through 2025. Next year alone, this would provide a collective $112 billion income boost to nearly 75 million children who live in households that would benefit from the expansion.

The ARP temporarily improved the CTC, providing a larger credit and reaching more children, including 39 percent of whom live in families too poor to qualify for the credit under permanent law. Of those benefiting in 2022, families in the lowest 20 percent—on average—would receive a $4,520 income boost to invest in their children.

The popularity of the expanded Child Tax Credit is apparent, even in advance of its formal rollout (monthly payments are expected to begin this July). But, then again, what’s not to like about a policy that would cut deep poverty among children in half.

 

The temporary expansion makes the credit fully refundable and available to nearly all children regardless of their parent’s income. The limits on refundability and earnings requirement have prevented nearly all low-income families with children from receiving the full credit, effectively excluding or leaving behind close to half of all Black and Hispanic children. The move toward refundability is an incredibly important change; it ensures that children in low-income families can receive the full benefit of the federal credit and meaningfully increases the after-tax incomes of those who would otherwise be left behind. This enhancement is uniquely targeted to low-income families and is key to allowing the CTC to move the needle on the stubbornly high rate of child poverty in the United States.

WHO BENEFITS AND BY HOW MUCH? The expansion also increased the maximum credit from $2,000 per child to $3,000 for each child age 6 and older and $3,600 for each child younger than 6 for families with income up to $150,000 (where the phase-out for the expanded increase begins for joint filers)—resulting in a more targeted increase. Seventeen-year-old children are now newly eligible for the credit. Next year alone, the bottom 60 percent of earners in the U.S. would receive 70 percent of the benefits. And families and children in the poorest 20 percent would benefit from 28 percent of the overall tax cut. And monthly payments of $250 or $300 each month will be available to eligible families this July, allowing for more stable and regular benefits for families who struggle to pay the rent or keep up with necessities, like diapers or food, throughout the year. By boosting incomes throughout the year, families with children can avoid taking on expensive debt to cover basic needs.

 

Currently set to expire at the end of 2021, these enhancements need to be viewed not just as a one-time tool for relief, but also as a cornerstone policy for ensuring a just and equitable recovery for families and children. This pandemic-driven recession has laid bare our nation’s economic and racial disparities. Making the CTC enhancements permanent is a concrete step Congress can take to put families on more economically sound footing, directly benefiting our nation’s children.

The children who remain left behind

As important and vital as the continuation of this enhancement would be, there is more to be done to ensure that this policy reaches all low- and middle-income children. The CTC, even in its enhanced form, continues to leave behind non-citizen children. That is more than 1 million children who remain ineligible and should be included in a permanent expansion to the CTC.

Children who lack Social Security numbers became ineligible for the federal CTC under the 2017 GOP tax law, the Tax Cuts and Jobs Act (TCJA). These families have been especially hard hit during the recession and have cruelly been denied federal coronavirus relief. Moving forward, it is essential that lawmakers ensure that the children of these families can participate in and benefit from a permanent expansion of the CTC. Only then can we achieve a truly equitable recovery.

For more on this topic, read Inclusive Child Tax Credit Reform Would Restore Benefit to 1 Million Young ‘Dreamers’.