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Biden’s Proposal to Expand the Child Tax Credit: Explained

Jan. 15, 2021, 5:52 PM

President-elect Biden’s $1.9 trillion pandemic aid plan includes a temporary but significant expansion of the Child Tax Credit.

The more generous tax credit is part of a wave of proposed new spending that would provide more direct payments to people, financial aid for states and cities, and expanded Covid-19 testing and vaccination programs.

Under the plan, the CTC would rise to $3,000 per child for a year and it would be fully refundable. The perk would be $3,600 for those under six and families with 17-year-olds would be eligible.

Samuel Hammond, the director of poverty and welfare policy at the Niskanen Center, a D.C. based think-tank, said the Biden proposal would represent the most significant anti-poverty legislation in a generation, essentially serving as a universal basic income for children. If implemented, the Biden proposal would cut the nation’s child poverty rate, currently the highest in the developed world, by half.

Who Gets the Credit Now?

The benefit is currently available to families with children under 17 who are citizens or U.S. resident aliens. The credit currently begins to phase out at $200,000 adjusted gross income for single parents and $400,000 for married couples filing jointly.

The Republican-led 2017 tax overhaul doubled the credit to $2,000 per child under 17 and added a $500 credit for older children and other dependents.

What is Biden Proposing?

In addition to increasing the amounts of the credits, Biden’s plan would make the tax credit fully refundable. Under current law, up to $1,400 of the credit is refundable.

A Biden transition team document said that $1,400 cap means that 27 million children are part of families that don’t earn enough money to qualify for the full value of the credit.

Making the credit fully refundable would allow such families to offset their entire federal income tax burden and receive a refund for the remaining amount they are eligible for.

Why Is This in a Pandemic Aid Package?

Democrats and some Republicans have been looking for a way to funnel money to hard-hit families as they try to help those severely affected by the pandemic.

Incoming Senate Finance Chairman Ron Wyden (D-Ore.) said Thursday that working class families are less likely to be able to work from home and more likely to work in the industries that have been hardest-hit by the pandemic.

“In fact, the Federal Reserve estimates they are experiencing Great Depression levels of joblessness,” Wyden said.

How Much Would It Cost?

The non-partisan Joint Committee on Taxation estimated that a one-year CTC expansion included in a pandemic-relief bill (H.R. 6800) that passed the House last May would have cost $118.8 billion over 10 years.

Biden’s proposed expansion would likely have similar costs.

Can It Pass?

Democrats like House Ways and Means Chairman Richard Neal (Mass.), Rep. Suzan DelBene (Wash.) and Sen. Michael Bennet (Colo.) have been pushing for the expansion even before the pandemic. The odds that the credit will be expanded improved when Democrats won control of the Senate after the Georgia runoffs.

Republicans were generally not publicly supportive of Biden’s overall plan, which Ways and Means ranking member Kevin Brady (R-Texas) on Thursday described as “yet another economic blind buffalo.”

But the child tax credit expansion is something that could garner bipartisan support. Some Republicans, including Sens. Mike Lee (Utah) and Marco Rubio (Fla.), have supported the idea of a more generous credit in the past.

“A larger child tax credit is an excellent idea,” Lee said in a statement to Bloomberg Tax Friday. “Many of the other ideas could use some work.”

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To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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