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Many politicians from both major political parties campaigned this year on pledges to tackle rising prices, which have made it hard for many Americans to afford basic necessities.
Current members of Congress can’t stop inflation, but they can do something, before they leave town for the year, to financially help millions of families. They can reinstate a more robust child tax credit.
Last year, as part of the American Rescue Plan Act passed by Democrats in Congress, the federal child tax credit was made more generous and payouts were more frequent. The changes were credited with lifting millions of American children out of poverty.
When the expanded credit expired at the start of this year, the child poverty rate rose quickly and significantly.
In Maine, about four out of five kids live in households benefiting from the expanded credit, according to the progressive Maine Center for Economic Policy. The vast majority of low-income families receiving the benefit said they used it to pay for necessities – most often food, and the biggest benefits went to rural areas.
As part of the American Rescue Plan, the maximum value of the credit rose from $2,000 to $3,600 per child under age 6 and $3,000 for older children. The credit became fully refundable, meaning it’s paid out in full even if someone owes less than that amount in taxes.
The 2021 changes also made it so the benefit was automatically paid in cash each month beginning in July, rather than paid as a lump sum when taxes are filed.
Without action from Congress, the benefit reverted back to the less generous credits and it will shrink down to $1,000 at most per child after 2025, when the 2017 GOP-passed tax law changes expire.
Initial research suggests that the expanded child tax credit reached over 61 million children in more than 36 million households, and funds were primarily used for child care, food, housing and other basic needs.
A March study from the National Bureau of Economic Research suggests that the benefits of returning to an expanded child tax credit would greatly outweigh its price. It estimates that the expanded program would provide benefits worth about $980 billion per year.
There have been several efforts over the past year to enact some version of a more generous tax credit. They have so far failed to gain needed traction.
One proposal, from Republican Utah Sen. Mitt Romney, would offer qualified families $250 a month for each school-aged child and $350 per month for children up to the age of 6. The payments would start four months before the birth of a child, in recognition that families bear additional costs before a child’s birth.
There is likely to be an effort in the lame duck session of Congress to tie the child tax credit to broader tax changes, namely extending the tax cut passed by the Republican-led Congress in 2017.
Given the positive impact of the expanded child tax credit, resuming this more generous credit can and should stand on its own. The larger credit clearly helped millions of families and significantly reduced the child poverty rate. That, it seems, to us, is worth the investment.
