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Windmill Tilting

Democrats Are Picking a New Fight Over the Expanded Child Tax Credit

Nearly two years after the credit expired, Democrats are pushing forward with legislation to dramatically reduce child poverty, despite GOP opposition.

Senator Michael Bennet
Al Drago/Bloomberg/Getty Images
Senator Michael Bennet

For Melissa Lester, a mother of two from Columbus, Ohio, the rising cost of childcare is a nearly insurmountable obstacle. Lester, a social worker and member of the advocacy group MomsRising, told the Senate Finance Committee in a hearing on Wednesday that her family paid more on childcare than on their mortgage, with the annual cost amounting to more than one year of tuition at Ohio State University.

Lester had been invited by Democrats on the committee to speak at the hearing on anti-poverty tax programs, specifically the effects the expanded child tax credit had on her life. “The Child Tax Credit expansion was a glimmer of hope,” Lester testified in her opening statement. “It made moms like me feel like maybe, just maybe, it’s possible for things to get better.”

That policy was briefly implemented in 2021 under the American Rescue Plan Act, Democrats’ nearly $2 trillion coronavirus relief package. The expanded credit reached more than 36 million households across the country, and resulted in a dramatic, if temporary, decrease in child poverty and food insecurity. Lester, a social worker, testified that it had provided her family with financial breathing room, and helped her save money ahead of the birth of her second daughter, because much of her maternity leave was unpaid. But the program expired at the end of 2021, due to congressional inaction.

“I don’t understand why Congress let it end,” Lester said. “Certainly, they weren’t looking out for families.”

Her testimony came as Democratic lawmakers press forward with measures to expand the credit once again, after trying and failing to reinstate the policy while they held both chambers of Congress. This is a Sisyphean task, given both the Republican House majority’s opposition to expanding the program and the ongoing political fights over government spending. Nevertheless, Democrats hope that they can muscle the child tax credit through as part of tax negotiation.

On Wednesday—the same day as the Finance Committee hearing—several Senate Democrats introduced the Working Families Tax Relief Act, which would implement the child tax credit as well as the earned income tax credit as expanded by the American Rescue Plan, which also lapsed.

The bill would restore the key provisions experts believe were responsible for the dramatic cut in child poverty: increasing the credit amount to $3,600 for children under age 6 and $3,000 for children between ages 6 and 17 living in households under a certain income threshold; disbursing the credit on a monthly basis; and making it fully refundable so that it is accessible to families too poor to pay income taxes. It would make minor tweaks to the policy as implemented by the American Rescue Plan, including allowing a household to access the credit in the first year of a child’s birth.

“The child tax credit, as we saw for those six months, was the most significant domestic policy achievement with respect to poverty that we’ve had here in generations,” said Senator Michael Bennet, one of the Senate bill’s lead sponsors. “And if we can reenact it, it would be again.”

Last week, a trio of House Democrats reintroduced the American Family Act, separate but similar legislation that would also reinstate the expanded child tax credit. The measure has overwhelming support within the caucus, co-sponsored by more than 200 Democratic representatives. “It has become the flagship [issue] of the Democratic Party,” said Representative Rosa DeLauro, one of the bill’s lead sponsors.

DeLauro, who has worked to implement an expanded child tax credit for two decades, said that she had seen a change “in the consciousness of members of Congress,” an understanding among Democrats of the policy’s benefits, which were deepened by the implementation of the enhanced credit under the American Rescue Plan Act. “People [saw] the results of what happened in a very short period of time … the transformation of the lives of families,” DeLauro told me. “That’s in everyone’s districts.”

The expanded child tax credit was a rare policy with nearly immediate and demonstrable results. In 2021, child poverty declined by nearly 46 percent, largely due to the expanded tax credit. Unsurprisingly, child poverty spiked after it expired: There were 3.7 million more children in poverty in January 2022 than just one month earlier, in December 2021. The child tax credit also helped significantly reduce food insufficiency in households with children, research showed. And again, it increased after the credit expired. One of the Republican witnesses at the Finance Committee hearing on Wednesday argued that the expanded credit would result in 1.3 million parents staying home from work over the long run; but the six-month expanded credit implementation had little effect on parent employment, research has shown.

Moreover, a March study found that, while it helped cut child poverty across all states, the expanded tax credit was particularly effective in low-cost, high-poverty states, such as West Virginia, Oklahoma, and Alabama. States with a “higher proportion of unmarried mothers, rural households, and large families” saw their rates drop around 50 percent, according to the report. With the exception of New Mexico, all of these states are in the Midwest and South, where their congressional representatives largely opposed the expanded credit.

The Center for Budget and Policy Priorities, a left-leaning think tank, estimates that without key provisions implemented by the expansion—including full refundability and making the credit accessible to children aged 17—roughly 19 million children in the lowest-income families are ineligible for the full child tax credit. “My job is to do everything I can to fight for the 19 million kids who are excluded from the full credit, all of whom I believe deserve the credit,” Bennet told me. “My goal is to fight for as many of those kids as possible, until the very end.”

House Democrats decided to reintroduce their child tax credit legislation ahead of a contentious meeting of the House Ways and Means Committee on Tuesday, in which the panel advanced a new Republican tax package along party lines. The GOP proposal would temporarily revive a different set of tax breaks to help companies with research and development, a Republican and business community priority that lapsed at the end of last year. The package would also roll back climate initiatives implemented by the Inflation Reduction Act while increasing the standard deduction claimed by families earning under $400,000 per year, which would be particularly beneficial for married couples.

Despite recent Republican hand-wringing over the growing budget deficit, multiple studies of their proposal show it further increasing the shortfall. The Joint Committee on Taxation found that the GOP bills would add a net $21 billion over a decade, even after offsets, which include rolling back credits for electric vehicle purchases. The Committee for a Responsible Federal Budget was less sanguine, estimating that the bill would cost $80 billion over a decade with interest, and more than $1.1 trillion over 10 years if temporary tax cuts and extensions were made permanent (given recent history, a push to enshrine such “temporary” tax breaks seems likely). In addition, the American Enterprise Institute, a conservative think tank, also found that the proposal to increase the standard deduction would be costly and poorly targeted, assisting households beginning in 2024 rather than this year, while high inflation is still an issue. Republicans have exhibited significant “chutzpah,” DeLauro said, introducing legislation that could add to the deficit after railing against government spending in recent weeks, and indeed threatening a national default over the issue.

Democrats are using their own child tax credit proposals as a foil to argue that the GOP plans favor businesses over families. “Republicans are bringing up tax bills to help the wealthiest and well-connected, and we want to help our kids have great futures and help families,” said Representative Suzan DelBene, one of the sponsors of the American Family Act. She offered an amendment to add the expanded child tax credit to the GOP measure, but committee Republicans voted to block it from consideration.*

Senate Democrats have also seized upon the House Republican tax package. “Two weeks, three weeks [ago], we were hearing that we’ve got to reduce the deficit,” Senate Majority Leader Chuck Schumer fumed on the Senate floor on Wednesday, recalling the arguments Republicans made during the debt ceiling negotiations. “‘Debt is our big problem. We should even default before we would deal with that problem.’ And now, all of a sudden, they passed a bill that increases the deficit by another trillion dollars.” (For their part, Republicans have cited scores from the right-leaning Tax Foundation, which found that their package is “roughly revenue neutral.”)

Still, some Democrats remain hopeful that there is room for negotiations with Republicans. The GOP tax cut package that passed in 2017 included a child tax credit expansion, increasing the amount from $1,000 to $2,000 annually. “The Republican Party has worked on the child tax credit over many years, and I think there is the opportunity for us to get to a bipartisan solution here,” Bennet said, although he acknowledged that “it won’t be everything that I want.”

Extending the research and development tax credit, which expired at the end of last year, could offer a basis for negotiations. In December, Democrats unsuccessfully pushed to reinstate the child tax credit along with an extension of the R&D credit. Members of Congress are considering restarting those talks, with Democrats hoping to match the child tax credit expansion with the breaks Republicans favor. Representative Richard Neal, the ranking member of the House Ways and Means Committee, told me that Democrats are “not hostile” to extending the R&D credits.

“There was a time when we would find common ground,” Neal said. “But there has to be some give and take in the legislative process.” (Republicans are quick to note that Democrats have also historically been supportive of those R&D credits.)

Senate Republicans seem more open to a compromise; Senator Mitt Romney had previously introduced his own child-allowance legislation, although Democrats have balked at how the bill would make up the lost tax revenue. “There’s a growing sense on both sides of the aisle that we’ve got to get it done,” GOP Senator Thom Tillis told Axios about the need for a deal on a tax package.

Whether there’s enough overlap between the parties to cut a deal remains unclear. GOP Senator Todd Young told Roll Call in March that “we could get a lot of Republican support for a well-crafted child tax credit,” but “there’s still a lot of separation between Republicans and Democrats on this issue.”

Senator Sherrod Brown, another lead sponsor of the Senate Democrats’ bill, argued to me that “it’s kind of incredible … that you have to [agree to] more tax cuts to rich people in order to help low-income people, who are working every bit as hard as the wealthiest people, to get these big tax breaks.”

Republicans’ primary concern is the cost of the expanded child tax credit; permanently extending it—as many Democrats hope to do—could cost around $1 trillion over 10 years. However, some experts argue that implementing such a credit would generate nearly $1 trillion in social benefits per year. Democratic Senator Joe Manchin, whose 2021 opposition helped sink hopes for extending the expanded credit, has also questioned whether recipients use it productively, even as research shows that poor households primarily spent the credit on necessities such as food, clothing, and shelter.

GOP lawmakers also oppose one of the primary features of Democrats’ proposal: full refundability, meaning that people who do not earn enough to have to pay income taxes can receive it. Representative Kevin Hern, who chairs the conservative Republican Study Committee and sits on the Appropriations Committee, noted that Democrats don’t support work requirements for the child tax credit, making it a nonstarter for Republicans.

“Why wouldn’t you want a quid pro quo? We’re going to send this to you to help you get your children back into daycares so that you’re working,” Hern said. “But [Democrats] don’t want to do that.” The Republican Study Committee released its own budget proposal on Wednesday, which would make certain elements of the 2017 tax cuts bill permanent, including the expansion of the child tax credit to $2,000 per year. Without full refundability, however, the full credit would still be inaccessible for the nation’s poorest children.

The counterargument from Democrats and supporters of the child tax credit is that receiving monthly payments would help them obtain jobs and remain employed. Testifying before the Senate Finance Committee on Wednesday, Lester said that the high cost of childcare forced her to make the decision between keeping her job and sending her children to a lesser program or leaving the workforce and “risking hardships for my family.” Moreover, while the credit would help her pay for childcare, Lester said, it would also help her family save money for her daughters’ higher education in the future.

“I want them to go as far as they want to go, or even further,” Lester said.

*This story has been updated to reflect that Ways and Means Committee Republicans voted to block DelBene’s amendment from consideration.