Under one draft of the plan being discussed, the IRS would be tasked with depositing checks worth $300 every month per child younger than 6, as well as $250 every month per child age 6 to 17. That would amount to $3,600 over the course of the year for young children, as well as $3,000 a year for older children, the officials said.
Unlike with the stimulus checks, the Biden administration and Democratic lawmakers are hoping to make these child benefits a permanent government program that would continue in future years, according to three senior Democratic officials who spoke on the condition of anonymity to discuss internal planning. The current proposal calls only for the expanded benefit to be enacted for one year, after which Democrats widely hope political pressure will force Congress to extend them. The benefit would be phased out for affluent Americans, though the precise income level has not been determined.
The benefit could prove costly, increasing the federal deficit by as much as $120 billion for one year, according to estimates by the Committee for a Responsible Federal Budget, a nonpartisan group. But it could curb child poverty in the United States by more than 50 percent, researchers at Columbia University have found.
Congressional Republicans are expected to oppose the measure because of its price tag. Similar plans have garnered pockets of Republican support, however, with Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) among the GOP lawmakers who have pushed for dramatically increasing the child tax credit. All but one Senate Democrat endorsed legislation to expand the child tax credit in the previous Congress.
Biden earlier this month announced his intention to push for an expansion of the child tax credit as part of his $1.9 trillion economic relief package, and congressional Democratic staffers have made significant headway in drafting the legislation.
Under the plan, the IRS would send these payments automatically to American families, similar to how the $1,200 stimulus payments were disbursed last year. This approach would not require taxpayers to wait until they file their taxes to receive the credit. Families would receive the monthly benefits even if they owe the government more in taxes than the value of the credit.
“This will have more collective buy-in if a broader swath of the population directly receives the payment,” one senior Democratic aide involved in drafting the legislation said, citing the popularity of the stimulus payments.
Democratic lawmakers are also exploring whether the Treasury Department can set up an online portal for parents to manage the disbursal of the new credit, these people said. The plan would be aimed at giving taxpayers the option of receiving a year’s worth of the tax credit at filing season, rather than every month, should they so choose. Aides cautioned it may take time for Treasury Department officials to successfully set up a site that could handle millions of such requests. Other Democrats worry about whether the IRS will have the capacity to disburse the payments efficiently.
The Democratic staffers, who cautioned that discussions were ongoing and that the proposal had not yet been finalized, spoke on the condition of anonymity to discuss private deliberations not yet made public.
House Ways and Means Committee Chair Richard E. Neal (D-Mass.) is closely involved in the effort to write the expansion of the child tax credit, which also draws significantly from legislation spearheaded by Sens. Sherrod Brown (D-Ohio) and Michael F. Bennet (D-Colo.), the staffers said. House Appropriations Committee Chair Rosa L. DeLauro (D-Conn.) has also been closely involved in efforts to expand the credit.
The United States spends less than almost any other developed nation on child benefits as a share of its economy. Only a handful of industrialized nations, such as Romania and Chile, rank behind the United States on measures of child poverty kept by the Organization for Economic Cooperation and Development.
The tax credit proposal is also meant to, in part, address the skyrocketing burden of raising children during a pandemic and the widespread economic struggles millions of families are facing. Researchers at Columbia University have found the Biden plan would dramatically reduce the number of children in poverty, by as much as 54 percent, the equivalent of 5 million children. More than 1 million African American children would be lifted out of poverty by the plan, the researchers found.
Under current law, the child tax credit diminishes in value for Americans who do not earn enough money to use the credit to offset their tax obligations to the IRS. That means that millions of the lowest earners do not make enough to receive the full benefit. Democrats hope to scrap that requirement as part of sending monthly payments, a process known as making the benefit “fully refundable.”
The Democratic proposal is also expected to phase out above a certain income, meaning affluent families would not receive it. Eligibility would be based on family income in the prior year, much like eligibility for the stimulus payments. Taxpayers could use the new Treasury Department portal to update their status if they experienced dramatic income declines, according to the people familiar with plans, who stressed that these decisions had not been finalized.
“This credit is an extremely effective tool in combating child poverty, and Democrats are working to make the expanded version fully refundable and be provided to eligible individuals on a monthly basis,” Neal said in a statement.
The fate of the expanded child tax credit will be wrapped up in broader negotiations in Congress over the relief package. Biden is pushing a $1.9 trillion measure that would include expanded stimulus payments, unemployment insurance and aid to state and local governments, and it is unclear when the measure might get passed.
Some Republican lawmakers have argued that proposed expansions of the child tax credit give too much federal assistance to people who are not working. The Wall Street Journal editorial board has criticized prior plans to expand the child tax credit, calling the benefit a “form of income redistribution — a special favor for some taxpayers that costs the Treasury a bundle.”
Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, said of the Democrats’ plan: “This clearly is something they want to make permanent policy, rather than just for covid relief.”
Even if the legislation can pass, it may prove difficult in practice to successfully disburse the credit to millions of Americans.
The IRS demonstrated that it could send out stimulus payments to hundreds of millions of American within a few months after Congress passed the Cares Act last year. But IRS officials have already told Democratic Senate offices that the agency would probably struggle to send monthly payments this year, particularly amid the busy tax filing season, said two people who spoke on the condition of anonymity to share details of private conversations.
Sen. Ron Wyden (D-Ore.), the incoming chair of the Senate Finance Committee, told The Washington Post that lawmakers are trying to make the credit go out monthly, but he also alluded to the difficulty the IRS may face.
“This ties into our bigger challenge in rebuilding the IRS,” Wyden said. “We can’t ask the IRS to do more and more and not provide adequate resources over the long term.”
Other concerns about the program have surfaced. Prior versions of the plan would structure the monthly child benefit by deducting it from a family’s existing tax liability. Some welfare experts have pointed out that millions of working-class families would earn too much — and owe the IRS too much — to receive a monthly $300 check if it must first be used to offset their tax burden.
Under that scenario, for instance, a single mother with one child earning about $46,000 a year would receive only about $1 a month, according to estimates by the People’s Policy Project, a left-leaning think tank. That could diminish the program’s political popularity and its ability to help families cope with volatile swings in income. Matt Bruenig, founder of the People’s Policy Project, went as far as to say that approach would be a “train wreck.”
Bruenig also called for the payments to be made universal, rather than be cut off for the affluent, pointing out that sending it to everyone would make the program easier to administer, ultimately benefiting poor and middle-class families. That approach is viewed as a political nonstarter among Democrats.
“If all this does is reduce your tax liability, there’s much lower visibility — people won’t see it as the federal government doing something new to help build your family,” said J.W. Mason, an economist at the John Jay College of Criminal Justice. “For this to build a political constituency, people need to see that they are benefiting from it.”
The impact of the credit on reducing poverty could also depend on its administrative simplicity, said James Ziliak, an economist at the University of Kentucky who studies welfare policy. Policymakers have discussed disbursing the monthly benefit payment based on what taxpayers predict their income will be for the upcoming year. Under that scenario, some families could underestimate how much they will make — and then have to come up with additional money to pay back the IRS at the end of the year. That is an approach some welfare experts want Democrats to avoid.
“The design of these things needs to be made transparent to the taxpayer and try to minimize any sense of confusion,” Ziliak said.
Biden officials have not said how the credit would be structured or allocated, and the plan they released last month was light on details. A White House spokeswoman declined to comment.
Advocates for the poor say there is a lot riding on whether congressional Democrats and Biden can smoothly execute the new benefit. Diane Rosenwald, 70, a volunteer tax preparer in Minneapolis, said that for 15 years she has listened in horror to the stories of poor Minnesotans who have struggled to navigate the complex paperwork required to receive the child tax credit.
“I could just weep. I could just scream. It’s so maddening,” said Rosenwald, a volunteer at the Minneapolis branch of the Urban League. “These returns are incredibly complicated, including the child tax credit. They should do whatever they can to get out this money directly.”