Stimulus Check Update: Child Tax Credit Bill Faces Uphill Battle

This week, President Joe Biden capped a major legislative victory with the signing of the Inflation Reduction Act (IRA), a sweeping component of his administration's domestic policy agenda containing measures to lower prescription drug prices, mitigate rising energy costs and combat the climate crisis.

Though lauded by Democrats as a much-needed win for his presidency entering this autumn's midterm elections, the plan that passed into law was significantly pared down.

Among the cuts to the bill was an extension of a pandemic-era expansion of the federal child tax credit that increased benefits to families from the current $2,000 per child to $3,000 for children under 18 and $3,600 for those age 6 or younger.

While some, like Vermont Senator Bernie Sanders, proposed including a five-year extension of that expanded credit in the IRA, the Senate ultimately rejected the measure in an effort to achieve the votes the final $740 billion package needed to pass.

But conversations on reviving the expanded child tax credit—which the White House credited as the main driver behind bringing child poverty to record lows in 2021—might not be finished yet. While Sanders' proposal failed, senators like Utah Republican Mitt Romney and Montana Republican Steve Daines have expressed interest in reviving discussions around an expanded child tax credit, laying the groundwork for a future deal.

Child Tax Credit
New Hampshire parents and other supporters gather outside of U.S. Senator Maggie Hassan's office to thank her for child tax credit payments and demand they be made permanent, on September 14, 2021, in Manchester, New Hampshire. Among the Inflation Reduction Act provisions that were cut to secure the bill's passage was an extension of a pandemic-era expansion of the federal child tax credit that increased benefits to families from the current $2,000 per child to $3,000 for children under 18 and $3,600 for those age 6 or younger. Scott Eisen/Getty Images North America

"I'm glad to work with my colleagues on a framework that is pro family, pro work and pro life," Daines said in a statement to Newsweek. "In light of the Supreme Court's decision in Dobbs, we should not only protect every child in the law, but also expand our commitment to support and encourage family growth. This will be a big boost for parents and families that won't increase the debt and will make federal policy work better for families across the nation."

The Republican proposal—announced by Romney's office in June—offers a tax credit of $4,200 for children age 5 and under and $3,000 for children aged 6 to 17. Some parents could also qualify for a $2,800 credit during pregnancy within four months of their child's due date, with the option to receive four monthly installments of $700.

However, the sticking points for Democrats that could hinder the Republican proposal lie with some of the finer points of the plan. The Republican plan would be paid for by eliminating the federal State and Local Tax deduction (SALT), which groups like the Tax Policy Center believe could have detrimental impacts on low- and moderate-income earners.

The Republican plan also proposes imposing annual income requirements of $10,000 to qualify for the plan, a limitation some economists believe could carve out a large proportion of Americans the child tax credit intends to help. According to the left-leaning Center for Budget and Policy Priorities, approximately 27 million children received less than the full credit or no credit at all because their families earned too little to qualify for the credit prior to its expansion in 2021 via the pandemic-focused American Rescue Plan.

"How badly do we need to make some compromise that we would be willing to adopt something like the Romney plan, that will actually push several million kids into poverty or further into poverty?" said Stephen Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy (ITEP). "That's a good question. And that seems like a very steep price to pay."

The biggest issue for Republicans, however, is not just passing the bill—it's finding a way to pay for it too. Sanders' plan, like the proposal enacted in 2021, includes no income or work requirements, and is funded by an increase in the top federal corporate tax rate from 21 percent to 28 percent, a proposal that is likely a non-starter for Republicans.

"I think people got very caught up in the idea that they liked the policy passed in the American Rescue Plan because it gives people cash and directly works to reduce child poverty, etc. But they didn't really realize how expensive it was," said Marc Goldwein, senior vice president and senior policy director for the center-right Committee for a Responsible Federal Budget. "It's over $100 billion a year. It's a lot of money."

The White House and other public policy groups believe the ancillary impacts of a more aggressive child tax credit could have significant benefits that outweigh the cost of the program. A 2021 analysis by Columbia University's Center on Poverty and Social Policy found an expanded child tax credit would deliver a monetary benefit eight times the annual cost through long-term savings via improved children's health, education and future earnings.

Economists argue similar expansions of entitlement programs throughout American history have also reaped substantial benefits for society, including through programs like Social Security.

"In enacting Social Security, policymakers made a decision that the U.S. should not tolerate high levels of poverty among older adults," said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities. "Without Social Security benefits, 38 percent of people over 65 would live in poverty, but after accounting for Social Security benefits, that number falls to 9 precent, a dramatic reduction. The Child Tax Credit expansion was a similar opportunity for policymakers to say that we should no longer tolerate the level of child poverty we see in the U.S. But instead, the Child Tax Credit expansion expired, and child poverty rose by roughly 40 percent in January."

At the end of the day, it's up to Congress to make a deal—an area where Goldwein believes both sides have room to move.

"I wouldn't let the perfect be the enemy of the good," Goldwein said. "I understand that there's a lot you can do to better target this credit to low-income families that maybe isn't going to give you the entire loaf, but there are lots of things you could do—like slowing down the phase-in—that might not get rid of the work requirement, but would have significant impacts on poverty reduction."