Extending the enhanced credit is included in Democrats’ massive social spending bill. But Democratic Sen. Joe Manchin of West Virginia — whose support is needed to pass the legislation — has said he wants to once again require parents to work in order to qualify for the credit, a shift that could exclude millions of the nation’s poorest families.
Manchin has not provided details on what such a mandate would entail but pointed out to CNN’s Dana Bash that “there’s no work requirement whatsoever.”
“Don’t you think, if we’re going to help the children, that the people should make some effort?” he said in a September appearance on CNN’s “State of the Union.”
The senator’s office did not return a request for comment, but experts said the simplest way to mandate that households work to receive the benefit would be to bring back the credit’s earnings requirement.
How the benefit changed this year
Until the pandemic relief measure was enacted, a family with less than $2,500 in earned income did not qualify for the child tax credit, and a single parent with two children earning between $2,500 and $30,000 received only a partial credit, according to the left-leaning Center on Budget and Policy Priorities. The credit was a maximum of $2,000 for each child up to age 17.
That meant that more than 26 million children were unable to get the full credit because their parents’ incomes were too low, according to Treasury Department estimates.
About half of Black and Latino children, as well as kids living in rural communities, received only a partial credit or no credit because of their families’ low incomes, according to the Center on Budget and Policy Priorities.
Returning to those rules would mean many families would once again be ineligible for the payments, said Ashley Burnside, policy analyst with the left-leaning Center for Law and Social Policy. In particular, parents with disabilities, parents of children with disabilities, people raising their grandchildren, gig workers, students with children and others could be left out.
The child tax credit is the centerpiece for President Joe Biden and congressional Democrats’ efforts to reduce child poverty. They beefed up the credit to a maximum of $3,600 for each child up to age 6 and $3,000 for each one ages 6 through 17 and ordered half of it to be paid in monthly installments this year. (Families can claim the other half when they file their 2021 taxes next year.)
Most importantly for poor families, lawmakers made the credit fully refundable so that more parents — including those who don’t work — are eligible to receive it.
One benefit of the enhancement is that it has made it easier for the Internal Revenue Service to distribute the credit, said Sam Hammond, the director of poverty and welfare policy at the Niskanen Center who helped GOP Sen. Mitt Romney of Utah craft a child allowance proposal.
“Any kind of earnings requirement — even something relatively simple — will dramatically undermine the administrative simplicity of the credit,” he said, making it more difficult for the agency to determine who is eligible.
Early studies show that the initial monthly payments, which started in July, are already having an impact.
The first two child tax credit payments lifted 3.5 million kids out of poverty, according to a recent estimate by Columbia University’s Center on Poverty & Social Policy. The child poverty rate was 11.5% in August, but it would have been 16.2% without the enhanced credits.
The payments also prompted a 25% decline in food insufficiency among low-income families with children, the center estimated.
But the enhancement is only in effect for 2021, and lawmakers are now seeking to extend it. The initial House bill called for continuing the larger monthly payments through 2025 and making the full refundability provision permanent.
The child tax credit, however, has become embroiled in the battle to reduce the size of the bill to gain the approval of Manchin and Arizona Sen. Kyrsten Sinema, both moderate Democrats who have demanded the package be slashed.
Biden laid out a scaled-back proposal Wednesday that would extend the credit for only one or two years, sparking an uproar among more left-leaning Democrats.
The child tax credit and work
Whether the fully refundable enhanced credit would be a disincentive for people to work remains a matter of debate among scholars.
A recent Columbia study that used data from two Census surveys found the initial payments did not have a negative impact on work.
“No matter what sample you’re looking at, no matter what model you run, you don’t find any meaningful effects on employment or labor force participation,” said co-author Zachary Parolin, a senior research fellow at Columbia’s Center on Poverty & Social Policy.
Likewise, a recent survey by the right-leaning American Enterprise Institute found that 90% of child tax credit recipients said the monthly payments have not affected their employment or that of anyone in their household. Some 5% said the funds are helping them work more, and 5% said the money is helping them work less.
But the possibility of long-term effects remains if the enhancement becomes permanent, said Angela Rachidi, a senior fellow at the institute.
Bruce Meyer, an economist with the University of Chicago, said it won’t take long for the employment impact to be felt.
Some 1.5 million workers — 2.6% of all working parents — would exit the labor force within two years if the enhanced credit is extended, he said. Most of them would be at the lower end of the income scale.
Prior to the boost, the child tax credit rewarded work — effectively giving a $2 increase after taxes to the wages of a single parent with two kids making $15 an hour, he said.
“Replacing it with a benefit that doesn’t depend on whether or not you work reduces the incentive to work,” said Meyer, who is also an American Enterprise Institute scholar.
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