Rachel M. Cohen has a very informative article at VOX about the last-ditch effort during the lame-duck session of Congress to bring back the Child Tax Credit, which was amazingly effective at reducing child poverty during its brief existence. I have to admit that I didn’t really understand the program until I read her article. I suggest that you read it also. I didn’t realize that the controversial expansion included non-working families, where poverty is most dire. Currently, only working families can claim the credit. She argues that Democrats are eager to reach a deal because they will lose their slender majority at the beginning of the year, and some Republicans might be open to a compromise because they are chastened by their poor performance in the last election.
In 2021, an expansion of the child tax credit delivered hundreds of dollars monthly to some 35 million parents across the United States, helping them afford gas, food, and school expenses, and lifting almost 3 million children out of poverty. But last December, Democrats narrowly failed to approve an extension of the expanded credit, and it expired.
Now, with only a few weeks remaining before a new Congress takes office, advocates for the child tax credit are trying again to get an expansion included in any end-of-year tax package.
It’s a tall order, especially because Democrats would need at least 10 Senate Republicans to agree to pass any broad deal; last year, even a simple Democratic majority proved out of reach. But Democrats believe the political dynamics have since changed in their favor, and so have their policy demands, making a compromise potentially easier for Republican moderates to stomach.
The sticking point since the expanded credit expired has been Republicans and West Virginia Democratic Sen. Joe Manchin’s resistance to the idea that a more generous child tax credit should go to families where no parents are working. 2021 marked the only time in its quarter-century history that the CTC had no parental work requirement, and it was that feature, experts agree, that drove the policy’s substantial reduction in child poverty: a stunning 46 percent drop in one year, according to US Census data. Until the Inflation Reduction Act passed in August, Democrats and their allies were unwilling to entertain any child tax credit expansion that maintained a connection to work.
Now, though, Democrats are signaling they’d embrace a more modest expansion — ideally one that keeps the credit fully available for all families, but at least makes it easier for parents with little to no earnings to access, even if at a reduced rate. Whether lawmakers can increase the amount of funding available for parents of infants and toddlers, as opposed to all kids under 18, is another option on the table.
The biggest negotiating card Democrats have right now is certain expiring business tax breaks. Since 1974, companies have been allowed to deduct research and development (R&D) spending the same year they make the investments, but as a budget gimmick included in the 2017 Tax Cuts and Jobs Act, businesses, as of 2022, now must expense those costs over five or 15 years instead. Restoring the right to annually deduct R&D spending is a top legislative priority of the business community.
Advocates are hoping to pair any restoration of R&D tax breaks with an extension of the child tax credit. In November, Democratic Sen. Ron Wyden, who chairs the Senate finance committee, declared his intent to push for both together while Democrats still control both chambers of Congress.
Democratic Sen. Sherrod Brown, chair of the Senate banking committee, has stated that expanding the CTC is his top priority. “I’ll put it this way, no more tax breaks for big corporations and the wealthy unless the child tax credit’s with it. I’ll lay down in front of a bulldozer on that one,” he said in September.
Additional aid for Ukraine, public health, and disaster relief are the Biden administration’s top priorities for any end-of-year deal, but in late November, Karine Jean-Pierre, the White House press secretary, said that if corporate tax breaks are included in a final deal, tax cuts “for working families” should be as well.
The negotiations ultimately may turn on just how much corporate lobbying pressure Republican lawmakers face. Prior to the midterms, Republicans anticipated much bigger electoral gains, making compromise with Democrats ahead of the new Congress seem less urgent. But now, with Democrats set to retain Senate control and Republican House margins tighter than expected, the expectation that Republicans would even be able to reach a deal on the business tax breaks next year if they wanted to looks dicey.
This reality, in fact, partly explains why Senate Republican leader Mitch McConnell announced last week that he’d like to negotiate an omnibus tax package in December, rather than a temporary spending deal that prevents a government shutdown but kicks the can on serious legislative decisions. Pushing the tax negotiations to 2023 would mean incoming House Speaker Kevin McCarthy, rather than current Speaker Nancy Pelosi, would be tasked with getting an acceptable deal through his chamber. “Nobody trusts McCarthy to pass anything (not even McCarthy),” quipped Politico in late November.
Though some advocates are still publicly calling for the expanded CTC of 2021, most acknowledge they’d accept more modest improvements
The 2021 expansion of the child tax credit, passed as part of President Joe Biden’s pandemic relief program, sent thousands of dollars to parents across the US. It made non-working and poor families fully eligible for the credit’s full value and increased the value of the subsidy itself — up to $3,600 per child.
Democrats had been optimistic that if they could just seed the generous program through the American Rescue Plan, then they would amass the kind of political support that makes a popular subsidy hard to repeal. But they failed, and the CTC is resultantly back to its pre-Covid form, with a maximum of $2,000 per child for working families only — and will remain there unless lawmakers change it.
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