What Biden’s Child Tax Credit Is Getting Wrong
Joe Biden’s Child Tax Credit is an important lifeline for poor and working-class families. But his administration has bungled the rollout: 90 percent of eligible children still haven’t been reached, consigning them to brutal poverty.
The first IRS child benefit payments went out today. Under the new scheme, parents are eligible for $300 per month for every child below the age of six, and $250 per month for every child aged six and above. The payments phase out for single parents with incomes above $112,500 per year and married parents with incomes above $150,000 per year.
The People’s Policy Project has spent most of this year focused on this benefit and specifically on whether the IRS is going to be able to successfully reach the approximately seven million kids that are eligible but not already registered with the IRS (I, II, III, IV). In the Washington Post today, we finally got some telling numbers on this question and they are not good: only 720,000 kids are successfully receiving the new Child Tax Credit (CTC) because they signed for one of the three stimulus payments over the last year. This suggests that 90 percent or more of the (mostly very poor) kids the IRS needed to reach through its much-maligned non-filer portal have not in fact been reached.
A lesser problem with the program, which we also highlighted in the run-up to the passage of the program in March, was covered at the Wall Street Journal today. The problem is that many parents will end up receiving overpayments that will be clawed back at the end of the year via a surprise tax bill. This will happen to parents whose income was below the income phaseout thresholds last year but rises above those thresholds this year. The surprise bills have not happened yet, but they are coming.
There has been some jockeying in the discourse about how exactly to process this mixed bag. On the one hand, it’s great they increased the value of the CTC from $2,000 per year to $3,000/$3,600 per year and it’s nice that they are paying it out monthly. On the other hand, the reform was specifically marketed as revolutionary because it will, for the first time, provide the CTC to the poorest of the poor. But this has not happened. Also on the other hand, all of the problems with the program that are now materializing were identified well before the legislation was passed, but lawmakers refused to adopt the simple solutions to them.
Given what I do, it’s hard of course not to pull my hair out as I watch completely predictable problems occur after I spent literally years trying to get lawmakers to do things that would avoid them.
If you are interested in what could have been, take a look at this bill, which I helped draft, but ultimately could not get anyone interested in (progressives decided to stake their fight on making the new program permanent rather than fixing its problems, which was perhaps a reasonable gamble, but also appears to have failed).
This bill does the following:
- Eliminates the Child Tax Credit, Earned Income Tax Credit (EITC), and credit for adult dependents.
- Creates a new child benefit of $378 per month (the difference between the one-person poverty line and two-person poverty line) that is indexed to inflation. This benefit is administered by the Social Security Administration (SSA) and uses the SSA’s existing child benefit rules and infrastructure.
- Mandates data-sharing between the IRS to facilitate the creation of the SSA benefit.
- Creates a new adult tax benefit of $600/year for single filers and $1,200/year for married filers that is fully refundable and phases out at $20,000 and $40,000 respectively. This effectively replaces the EITC.
- Creates a new $600/year credit for adult dependents that is fully refundable.
I believe this design would have done a much better job of reaching the non-filer kids that the IRS is struggling to reach because the SSA is a much more accessible agency (it has fifteen hundred customer-facing offices throughout the country) and, in the longer run, because all children are already enrolled in the SSA at birth. It also would have been better at reaching non-filer kids because it requires much less paperwork, both because you don’t need to report a lot of the information that is required on tax forms and because you would not need to refile every single year to keep your benefit flowing.
In addition to better reaching non-filer kids, the lack of a phaseout on this child benefit eliminates the overpayment and underpayment problems in the current design. The $600 per adult outlined in points (4) and (5) would protect families from being cutback by the change and effectively make EITC and adult dependent benefits fully refundable in the same way as the CTC was made fully refundable.
This bill of course could still be passed, either fully or in part. But it doesn’t seem very likely at this point. For path-dependent and egotistical reasons, the bad decisions that were made in March will likely haunt the US child benefit regime for a long time instead.