Biden’s Political Posturing Damages Bipartisan Attempts to Pass Legislation on Alleviating Child Poverty

The child tax credit is a reasonable policy — if Republicans can find a way to help the poor without discouraging work.

SACRAMENTO — President Joe Biden’s State of the Union address was mostly about political posturing (and proving that he was still alive and kicking) rather than policy, but one of the few granular policy areas he touched on involved something known as the federal child tax credit (CTC). Democrats and Republicans have been bickering over its expansion for at least a year now, but it remains one of the few areas where the two parties can easily strike a compromise if the spirit moves them.

Created by Congress, the credit has the noble goal of providing working parents with a tax break for each of their children. It’s a bipartisan idea (check out Newt Gingrich’s Contract with America) that encourages child rearing and reduces each family’s federal tax burden. Similar to the earned income tax credit, however, such tax credits often end up as direct subsidies paid to people who aren’t working and don’t have anything to have credited from their tax bill. That issue — who gets the credit? — is the obvious source of conflict.

During the pandemic — when American officials lost their resistance to simply handing out free money without strings attached — the Biden administration ended “refundability,” which is just a wonkish term for the work requirement. The president also boosted the credit from $2,000 to $3,600 a child. Those extensions expired at the end of 2021, and Congress has been wrestling with the issue since then, turning it unnecessarily into yet another partisan battleground.

In his speech, Biden called to restore the broader pandemic-era benefits but, as the Wall Street Journal notes, “didn’t mention a more narrow boost to the credit that’s now under discussion in Congress.” The Journal explains that the House passed a bipartisan bill in January that expands the credit slightly and offers some business-tax deductions, but the issue has stalled in the Senate as November electioneering muscles out serious lawmaking.

The latest bill is better than a return to the pandemic-era expansions, but there’s room for improvement. The legislation passed the House of Representatives 357 to 70, reflecting Democrats’ eagerness to provide benefits for the poor and many Republicans’ concerns that the current tax code penalizes people with larger families. Per the New York Times, the plan is financed by reducing the pandemic-era employee-retention tax credit — and was bolstered by both parties as a “way to show voters they can actually accomplish something.”

It’s nice that Congress is paying for something by cutting somewhere else, but is this plan something worth accomplishing? The Journal editorial page last January argued “no,” calling it a Democratic “Trojan Horse” that will discourage work: “That’s because the bill would hand out larger child-credit checks at lower incomes—and because the child credit is merely part of a constellation of benefits that included the earned-income tax credit and food stamps, which phase out as income rises.” Frankly, that’s more of a hit on our overall welfare system than CTC itself.

Other conservatives see the child tax credit as a reasonable policy to reduce child poverty — and one that doesn’t necessarily reduce work incentives (depending on how it’s structured). Duncan Braid, of the populist/conservative organization American Compass, argued in February that the bill finds the right middle ground by rejecting unconditional cash payments preferred by progressives while also “strengthening the incentive to enter the workforce and getting more support more quickly to working families.” I largely agree, although Braid underplays some of the bill’s work disincentives.

Although I’m skeptical of any government programs, I’m favorably disposed toward real tax breaks — and am concerned by the burgeoning cash-giveaway alternatives that are gaining traction as a way to supposedly help struggling families. In my previous American Spectator column, I point to the troubling trend toward Universal Basic Income programs that hand out cash without restriction. A well-designed child tax credit program can provide help to families without taking that work-ethic-destroying “free money” approach, so it’s imperative to pass something along the right lines.

Basically, Democrats favor making permanent as many of the pandemic-era expansions as possible while Republicans rightly want to ensure that there aren’t disincentives to work. In their research, my R Street colleagues have advanced a middle ground that provides a base $2,000 in CTC benefits for everyone then phases in another $2,000 for workers. The current measure approximates that concept, although, as another Journal piece notes, it could “weaken work requirements by allowing filers to be completely out of work for more than a year and still receive the additional tax credit.”

There’s obviously still much work to do on the details, as people do, in fact, respond to tax and benefit incentives. Nevertheless, the Senate would be wise to reject the general approach touted by the president in his national address. It should focus on ways that help low-income people and encourage them to find full-time work, which remains the best anti-poverty program of all time.

Can something reasonable emerge in an election year dominated by partisan soundbites? Maybe not, but here’s an example of a policy that needs more legislative work and less posturing. Unfortunately, the president’s words probably only hardened both sides.