A new child tax credit expansion could provide monthly income. Some question whether the help is too much or too little

Business News
Spread the love


Halfpoint Images | Moment | Getty Images

A Democratic proposal to expand the child tax credit for one year could give qualifying families up to $300 per child per month.

But like all direct payments made by the government as part of Covid relief, some are questioning whether the aid will be too much or too little.

One of the strongest objections to the Democrats’ proposal came from Sen. Marco Rubio, R-Fla., who wrote in an op-ed this week that it is “not a pro-family policy, no matter how much Democrats will claim it to be.”

The child tax credit expansion is aimed at reducing child poverty. Research has indicated President Joe Biden’s plan could help cut today’s rate in half, particularly for minority families.

More from Personal Finance:
Unemployment benefits: What Democrats want in a stimulus package
Meet the student loan borrowers refusing to pay their debts
Obamacare exchanges reopen Monday. How to get a low-cost plan

Still, others like Rubio are skeptical.

“If pulling families out of poverty were as simple as handing moms and dads a check, we would have solved poverty a long time ago,” Rubio wrote.

As with other direct payments, such as stimulus checks, the debate on how the child tax credit is structured has focused on whether those who are hurting the most financially will truly benefit.

Some experts say the Democratic plan could also enrich those at the top of the qualifying income thresholds.

How Democrats’ child tax credit would work

The child tax credit helps parents under certain income thresholds financially provide for their children.

Today, it amounts to $2,000 per child for those who earn up to $400,000 if they are married and $200,000 if single.

Because it’s a tax credit, it lets parents reduce their federal tax liability. (This is not to be confused with a deduction, which lowers adjusted gross income.)

House Democrats’ proposal, which was released this week, calls for raising the credit to $3,600 per child under age 6, and $3,000 per child for those up to and including age 17.

The bill would make it so families can opt to receive payments monthly, instead of having to wait for one lump sum at the end of the year. Families could receive up to $300 per month per child under 6 and $250 per month per child ages 6 to 17.

Eligibility for fuller payments would be based on income. So single parents with adjusted gross income up to $75,000, heads of household with up to $112,500 and married couples filing jointly with up to $150,000 would qualify.

The credit would phase out for those making above those levels, where it would be reduced and then plateau at $2,000 per child. It would be capped for individuals with $200,000 in income and couples with $400,000, the same thresholds in place for the credit today.

“The idea is the current $2,000 that people get per kid still phases out the same way,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.

Protecting the credit for those making up to $400,000 is also in line with Biden’s campaign promise not to raise taxes for people making under that level of income.

Why lower income households would benefit

The legislation also takes aim at changing existing rules to make it so that lower-income families can access the credit.

To do that, it eliminates the $2,500 minimum income requirement and makes the credit fully refundable. That would give access to families who currently receive no credit or a reduced credit.

“That represents a pretty big shift, I think, in the goal of what the credit was trying to do,” which is help working families, said Garrett Watson, senior policy analyst at the Tax Foundation.

Estimates have found such a change could lift 9.9 million children nearly or completely above the poverty level. Many of the children who would benefit would be Latino, African-American or Asian-American.

Yet some conservatives have spoken out against the proposals.

Sen. Mike Lee, R-Utah, (left) and Sen. Marco Rubio, R-Fla., at a March 4, 2015 Capitol Hill news conference to introduce their proposal for an overhaul of the tax code.

Getty Images

Rubio and Sen. Mike Lee, R-Utah, released a joint statement this month calling for Congress to expand the child tax credit without “undercutting the responsibility of parents to work to provide for their families.”

“We do not support turning the Child Tax Credit into what has been called a ‘child allowance,’ paid out as a universal basic income to all parents,” Rubio and Lee said. “That is not tax relief for working parents; it is welfare assistance.”

Together, the senators have put forward an alternative proposal for raising the credit to $4,500 per child under 6, and $3,500 for older children. Work, however, would be a key requirement under the plan.

Yet other experts argue that the key point of the Democrats’ plan is making the money more accessible to families to help fight poverty. Therefore, tying the benefit to income would be counterproductive.

“Is the goal to reduce child poverty or not?” Wamhoff said. “And if that is the goal, then you give assistance to families with children. It’s pretty straight forward.”

But as parents under the same $150,000 income threshold for married couples also stand to get full $1,400 stimulus payments for both them and their children, many families could be in for a big pay day if the current coronavirus relief package goes through.

Altogether, some families could qualify for as much as $10,000 in direct payments, estimates Bill Hoagland, senior vice president at the Bipartisan Policy Center.

“I think we need to do something,” Hoagland said. “But I think there needs to be a better targeting and coordination here between the direct payments and the child tax credit.”



Source link

Leave a Reply