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U.S. families may receive a little more help at tax time this year now that the House of Representatives approved an “enhanced” child tax credit for 2024 and 2025—part of a $78 billion bipartisan tax package that passed with strong bipartisan support on Jan. 31. Among other measures, the Tax Relief for American Families and Workers Act trades off expansion of the child tax credit program for an extension of Trump-era tax incentives and breaks for businesses.
The child tax credit enhancements will lift as many as 400,000 children above the poverty line in 2024 and push an additional 3 million U.S. children in deep poverty closer to the poverty line, according to the Center on Budget and Policy Priorities.
Supporters of the act had to overcome G.O.P holdouts in the House who objected to its provisions. Some Republicans budget hawks were unhappy about both the enhanced credit and the extension of tax breaks to corporations that were set to expire in 2025.
Despite support from pro-life and evangelical groups, House critics of the expanded credit called it a welfare, not a tax-relief package, and many were unhappy that the credit would be offered to immigrant-led households with U.S. born children. The tax act’s fate in the Senate is unclear, but the legislation has been endorsed by U.S. governors and it has strong support from 250 manufacturers associations that are eager to see the Trump-era tax breaks continued.
The child tax credit enhancements will lift as many as 400,000 children above the poverty line in 2024 and move an additional 3 million U.S. children in deep poverty closer to the poverty line.
Bipartisan progress has become a rarity in Washington. U.S. bishops were quick to celebrate reports of a bipartisan breakthrough on the child tax credit as soon as a compromise agreement emerged from the House and Ways and Means committee on Jan. 16.
“This is exactly the sort of policy supporting women, children, and families that Congress should prioritize,” said Archbishop Borys Gudziak of the Ukrainian Archeparchy of Philadelphia, who serves as the chair of the U.S. Conference of Catholic Bishops’ Committee on Domestic Justice and Human Development, exhorting Congress to pass the measure in a statement released on Jan. 23.
The Center on Budget and Policy Priorities the improved child credit an “important step forward,” if still a far cry from the short-lived improvements in federal support for families that had been part of the Biden administration’s $1.9 trillion American Rescue Plan in 2021.
Historically, the major problem with the child tax credit program has been that it leaves out the poorest of the poor. The credit reduces tax liability by up to $2,000 per child, and it is partially “refundable,” but to qualify, families must show at least $2,500 in annual earnings. The credit phases in at a rate of 15 percent per dollar of earnings over $2,500. That means many of the lowest-income families only get a partial credit or no credit at all. Worse, under the existing terms, low-income families can receive a full credit only for their first child—each additional child receives a reduced credit or none at all.
If the goal is poverty reduction for families with children, that structure can lead to head-scratching outcomes. In 2023 couples with two children in households earning $400,000 received the full $4,000 credit ($2,000 per child) while a single head of household with two children earning $15,000 got just $1,875. According to the C.B.P.P., an estimated 19 million children received less than the full benefit because their parents’ incomes were too low.
Looking to future improvements in the reach and effectiveness of the child tax credit, the U.S. Conference of Catholic Bishops supports making the child tax credit fully refundable.
The revised credit raises the phase-in amounts for the nation’s lowest-earning households and offers low-income families full credit for all children. And beginning in 2025, child tax credit increases will be pegged to inflation. Unfortunately, the compromise continues to exclude families without any earnings, and full benefits remain unavailable to those with earnings under $16,000. That means that while more U.S. families will be helped in 2024, millions of children will continue to be left out.
Anti-poverty and children’s advocates had been angling to maintain the emergency expansion and restructuring of the child tax credit deployed during the Covid-19 pandemic. At the beginning of the crisis, when all eyes were on preventing the worst from happening to families and the economy because of job-site lockdowns and closures that accompanied the pandemic, the federal government created a uniquely generous emergency package that proved a huge anti-poverty success, cutting U.S. child poverty in half in just one year.
The American Rescue Plan in 2021 increased the credit from $2,000 to $3,000 per child for children over the age of 6 and to $3,600 for children under the age of 6, and it raised the upper age limit from 16 to 17. The plan also made the full credit available to low-income children regardless of their families’ income.
But perhaps its most effective innovation was to convert the annual credit into a monthly cash delivery from the Treasury Department. Most families began automatically receiving payments of $250 or $300 per child each month without having to take any action. The credit had previously been delivered to eligible families at tax filing time once a year, but as many U.S. families live paycheck to paycheck, they had little reason to appreciate its impact. The monthly checks or electronic transfers, on the other hand, proved to be a welcome boost through the worst months of the pandemic.
Anti-poverty and children’s advocates had been angling to maintain the emergency expansion and restructuring of the child tax credit deployed during the Covid-19 pandemic.
The U.S. Census Bureau found that child poverty, calculated by the Supplemental Poverty Measure, fell to the lowest level ever recorded in 2021, dropping from 9.7 percent in 2020 to 5.2 percent in 2021. In 2021, the monthly credit lifted 5.3 million people out of poverty, including 2.9 million children and 1 million children under 6.
Unfortunately the credit’s monetary and eligibility expansion and its conversion into a monthly payout was short-lived. Though the Biden administration sought to make those changes permanent, the American Rescue Plan’s version of the child tax credit did not survive budget wrangling in 2022.
With zero support from Republicans in the Senate and one nay vote among Democrats, from Joe Manchin of West Virginia, the credit reverted to its previous form with a predictable outcome. In the biggest annual increase ever recorded, the share of Americans under 18 living below the poverty line jumped from 5.2 percent in 2021 to 12.4 percent in 2022. That meant an additional 5 million U.S. children growing up in poverty.
The compromise reached this month on the child tax credit begins to address some of that damage, but child advocates say they will continue to press for more generous tax credits in the future and to restore the delivery of the credit in monthly installments. While Democratic legislators have been pressing for continuing the credit as it was structured under 2021’s rescue plan, an expanded credit also found champions among conservatives this year who see an increased credit as a straightforward assist to family stability.
The compromise in Congress results from a trade-off that some will no doubt find more than a little noxious—the expansion of tax incentives and cuts for U.S. businesses. Analysts at the C.B.P.P. say U.S. corporations already pay too little in taxes but are willing to endorse the deal under the current terms if it means reversing the recent spike in child poverty.
In the biggest annual increase ever recorded, the share of Americans under 18 living below the poverty line jumped from 5.2 percent in 2021 to 12.4 percent in 2022.
“Poverty shortchanges children’s futures,” C.B.P.P. President Sharon Parrott said. “Providing income support to children in low-income families improves their health and education outcomes, an investment that benefits the nation as a whole.”
Looking to future improvements in the reach and effectiveness of the child tax credit, the U.S. Conference of Catholic Bishops supports making the child tax credit fully refundable, “without a minimum income threshold, so the poorest children receive its full value.” The bishops also support converting the program to a monthly stipend as innovated during the pandemic, arguing that “stable monthly payments would be more helpful and practical for lower-income families than the current annual payment, reducing income volatility and lowering child poverty year-round.”
The bishops urge that any new family assistance emerging from an enhanced child tax credit not be paid for by cuts to existing social services and ask that the credit be made available retroactively in the year before a child’s birth since many families “experience financial stress during pregnancy.”
More on the Child Tax Credit from America:
- Permanently expand the child tax credit. It’s the pro-life thing to do
- Joe Manchin was no centrist
- Biden’s new child allowance is a breakthrough for families. Mitt Romney’s plan is even better.
- What can bring together pro-life Republicans and progressive Democrats? Expanding the child tax credit.
- Universal basic income is having a moment. Can advocates convince a skeptical public?
A deeper dive on the Child Tax Credit
- Letter to Congress Regarding Child Tax Credit, January 9, 2024
- About 16 Million Children in Low-Income Families Would Gain in First Year of Bipartisan Child Tax Credit Expansion
- Understanding the Tax Relief for American Families and Workers Act of 2024
- Explainer: Congress considers an increase in the Child Tax Credit
- Proposed Tax Deal Would Help Millions of Kids with Child Tax Credit Expansion While Extending Damaging Corporate Tax Breaks
- The new Child Tax Credit deal is really a safety net deal—and by that measure it is only a start
- Statement by Timothy Head, executive director of the Faith & Freedom Coalition, on the effort to strengthen the child tax credit
