How To Save the Child Tax Credit
American families are struggling in today’s economy. From the rising costs of food and gas to ballooning home prices, too many Americans are at risk of slipping into poverty. That’s why now is a good time to reflect on poverty-relief programs like the Child Tax Credit (CTC) and consider how to ensure those in need get the support they deserve. Unfortunately, like so many issues in Washington, Democrats and Republicans are at a crossroads over the program, and the question is can we find room for agreement?
When Congress passed the Taxpayer Relief Act of 1997, the CTC was a $500 per-child credit, which helped reduce a family’s tax burden. Today, that relief has ballooned to become a $3,600 allowance — a financial injection directly from government coffers. The 2021 American Rescue Plan initially expanded the CTC even further; but that provision expired in December, and a bill to renew it stalled.
For many Democrats, few priorities eclipse reviving the now-expired expanded Child Tax credit, which they see as essential to preventing more families from falling into poverty. Republicans, on the other hand, worry this is a burden on the American taxpayer that ought to at least warrant a work requirement to earn the credit. While both sides make valid points, neither party is addressing the complete picture. And while the partisan bickering continues, millions of families are left suffering.
However, there is an option that would satisfy both sides: reforming the Child Tax Credit. According to new analysis, reforming the Child Tax Credit to make it fully refundable — with a work requirement — would offer relief to nearly 8 million more parents, some 3 million of whom are single mothers. All it takes is compromise.
For one thing, claims that the Child Tax Credit reduces poverty are debatable. Equally unclear is how credit affects social mobility, a quintessential part of the American Dream. Doling out a few extra bucks to struggling parents doesn’t improve their long-term job prospects or financial security. But the Child Tax Credit wasn’t meant to combat child poverty. So rather than trying to force the expanded Child Tax Credit to solve a social issue it wasn’t designed to tackle, policymakers should focus their energy on reforming it.
Prior to last year’s credit expansion (which temporarily jettisoned the work requirement), parents had to earn at least $2,500 to qualify for any relief. At the federal minimum wage, that’s roughly eight days of work. Easy enough. But claiming the full credit, $2,000, required at least $37,000 in earnings. For America’s poor, this means working nearly 100 hours a week. That’s over two full-time jobs, every week, 52 weeks a year.
Single mothers are particularly hard hit. Not only do they earn less than single fathers, but they also claim more children as dependents. More dependents mean a larger child tax credit, but a larger credit requires higher earnings. See the problem? Recent analysis from the R Street Institute estimates that 3.6 million single mothers — all of whom work — are unable to claim the full child tax credit. These single mothers deserve policies that work for them, not against them. While married women typically have greater financial security than single women, we need to focus foremost on providing financial relief.
People — rich and poor — admittedly find meaning in work. But if you’re poor in America, you can find all the meaning you like and still be excluded from the Child Tax Credit. To fix this inequity, Congress should do two things. First, keep the work requirement. Second, make the full credit refundable.
That millions of working parents can’t claim the child tax credit doesn’t negate the need for a work requirement. Federal policies that promote work can — and have — improved both earnings and employment. However, it’s alarming that so many parents can’t claim the full child tax credit despite working.
The solution is making the full child tax credit refundable. That is, allowing working parents who don’t have sufficient tax liability to claim the full benefit. This proposal won’t draw universal praise. Some on the right will say making benefits easier to access disincentivizes work. Some on the left will argue that any work requirement leaves some Americans to fend for themselves. They’re both right.
Public policy is an imperfect compromise. Moreover, while Americans can — and should — debate the efficacy of the Child Tax Credit, surely, we should all agree that claiming that credit shouldn’t entail working oneself to death.
