But having the IRS stand up a new program starting in July to send payments for approximately 66 million American children could prove a challenge.
Experts warn the administration could struggle to reach two vulnerable groups likely to be among those who need help the most: households where incomes are so low families don’t file federal income taxes and families experiencing changes in their living arrangements.
“This is a very important reform and should be pursued. But there is a big risk here of missing people who ought to be receiving benefits,” said Howard Gleckman, senior fellow at the Tax Policy Center, a nonpartisan think tank.
Under Democrats’ legislation, the IRS would send the payments to parents based on their income tax returns, marital status and child custodial status from the previous year. Singles who earned $75,000 or less the prior year and couples earning under $150,000 in the prior year would qualify for the benefit in full.
But as many as 3.2 million children live in poor households that do not file federal income taxes, according to the most recent data from Center on Budget and Policy Priorities, a left-leaning think tank. That means the IRS would not have those families’ tax data or know whether to send them the new monthly benefit. Parents who do not file taxes are likely to be suffering the worst of the financial shock from the pandemic, which has battered those at the lower end of the economic spectrum.
They are also about twice as likely to be Black compared with the national average.
“The tax code is a powerful tool, but it only works insofar as you have really good participation in the tax system,” said Kyle Pomerleau, a tax expert at the American Enterprise Institute, a right-leaning think tank. “Tax credits are likely to miss people who don’t file individual income taxes, and so they will miss many low-income households.”
Additionally, experts say, the IRS is likely to struggle to reach the millions of families experiencing changes in child custody arrangements because the agency lacks current information about family status. Democrats’ plan calls for sending the monthly benefit to parents who had custody of their child for more than 50 percent of the preceding year.
About 3 million children live with a different adult than they did the year before, according to the Center on Budget and Policy Priorities, a left-leaning think tank. The Census Bureau has found that about 30 percent of children younger than 6 experienced a “major change” in their family or household status over a three-year period and that those children are more likely to be Black, Hispanic or poor.
If custody arrangements change in the middle of the year, millions of parents and grandparents who are raising children could miss out on the payments, experts say.
“Children are born; children age; you get divorced; the child is living with a different parent — all that stuff changes all the time, and is what makes the child tax credit very complicated,” said Gleckman.
House Ways and Means Committee Chairman Richard E. Neal’s (D-Mass.) bill calls for the Department of the Treasury to create an online portal where Americans can update their information to claim the credit.
Democrats are vowing to step up outreach efforts to reach “non-filers,” like the Biden administration has for disbursing the stimulus payments, through nonprofits and other outreach groups. But it is unclear how many families will be able to navigate the new online system.
“By expanding [the child tax credit] and making it more accessible, the program will help close the deep racial economic gaps in our country,” Neal said in a statement. “There are inherent disparities in the tax code that we must work to overcome, but in the short-term, it is the federal government’s strongest vehicle for implementing changes like these.”
Some experts warn potential administrative headaches may dilute the popularity of the program. The child benefit in Biden’s plan would only last one year, but senior Democrats have said they will seek to make it permanent.
Sam Hammond, a welfare policy expert at the Niskanen Center, a D.C.-based think tank, said he fears a repeat of the highly publicized problems with healthcare.gov — the website set up under President Barack Obama for people to join the exchanges created by the Affordable Care Act, which put the broader Obamacare project in political peril.
“Does this become a healthcare.gov fiasco if every other week there’s another news story about a noncustodial father receiving thousands of dollars that should have gone to the mother?” said Hammond, who worked on a competing plan for child benefits from Sen. Mitt Romney (R-Utah).
Numerous congressional aides close to the drafting of the legislation expressed awareness of these potential pitfalls. Democrats argue that the benefit will dramatically reduce child poverty in a country with one of the highest rates of child poverty in the developed world, according to rankings from the Organization for Economic Cooperation and Development.
Supporters of the plan noted that stimulus payments approved by Congress last spring and in December also did not go out automatically to non-filers but are still viewed by many economists as both a political and economic success. Some research has found the stimulus payments dramatically staved off poverty as the economy wobbled under the weight of the coronavirus.
And Democrats have vowed to pay close attention to the administrative challenges facing the tax agency. The legislation includes an additional $2 billion in new funding for the IRS to implement the program.
“We understand putting together this program is incredibly important,” said Rep. Suzan DelBene (D-Wash.), one of the lead advocates for the program in the House, in an interview. “We have learned a lot with the [stimulus checks], and it’s important we continue to engage with and use what we learned there on engaging with non-filers.”
DelBene added: “We worked with Treasury and IRS to craft the legislation in a way that helps them succeed … the IRS has done really impressive things when given the proper resources to do so.”
Some policy experts believe the glitches could be avoided or at least partially mitigated by amending the legislation before it is signed into law, although their suggestions are contested.
The suggestions include giving the Social Security Administration, rather than the IRS, responsibility for disbursing the payments. That was the mechanism Romney chose in the child benefit plan he released earlier this month. His plan, unlike Biden’s, called for cuts to existing anti-poverty programs to fund the benefit.
The SSA would be much more efficient at delivering benefits to non-filers and poor families because parents already register children with the agency at birth, said Matt Bruenig, founder of the People’s Policy Project, a left-leaning think tank.
Biden’s administration could reach non-filers by initially assigning the benefit to each child’s birth mother, Bruenig said, with reassignment only happening if a custody change occurs. This would allow the benefit to be paid without anyone having to file a tax return and without having to know a parent’s marital status, income or household situation, he added.
Some congressional aides said Democratic lawmakers may be open to making the switch after the program is up and running. Still, Gleckman disputed that the Social Security Administration would be better equipped to send the payments, particularly given Democrats’ insistence on tying the benefits to family earnings.
Getting rid of those requirements would make it easier for the SSA to administer the benefit, Gleckman said, but in either case the IRS may be better equipped to figure out where to send the money.
“I don’t really know what the value-add would be to have Social Security doing it, and I’m not sure it would be faster or more efficient,” Gleckman said.
“If you do what Mitt Romney wants and get rid of all the income requirements, and you had none of these phase-outs — maybe, in that case, the Social Security Administration could do it. But that’s not going to happen. Congress is not going to do that. So we’re building on the existing child tax credit program, which has a lot of constraints.”