A group of centrist Democrats is pressing senators to keep the four-year expansion of the child tax credit they’re expecting in the House, along with a permanent provision that the benefit be fully available to the lowest-income individuals.
There’s strong support for expanding the child tax credit on the tax-writing House Ways and Means Committee, and the New Democrat Coalition is pushing for that to hold in the Senate, said Rep. Suzan DelBene of Washington, a Ways and Means member who leads the moderate group.
“Definitely, I have concerns about the Senate,” DelBene said Friday on a call with reporters.
As the New Democrats press the issue with the White House and fellow lawmakers, DelBene called on the credit’s main Senate proponents — two Democrats on the tax-writing Finance Committee, Sherrod Brown of Ohio and Michael Bennet of Colorado, along with New Jersey Democrat Cory Booker — to speak up. “We need them to be vocal and loud as well,” DelBene said.
The New Democrats are on board with the Biden administration’s proposal for expanding the child tax credit through the planned $3.5 trillion budget reconciliation package. Democrats included a one-year expansion of the benefit in the $1.9 trillion coronavirus relief law earlier this year, but that expires after the 2021 tax year.
Under the temporary expansion, the maximum value of the benefit rose from $2,000 to $3,600 per child under age 6 and $3,000 for older children. The maximum age for the credit increased from 17 to 18 years old, and became fully refundable, meaning it’s paid out in full even if someone owes less than that amount in taxes.
The extra $1,000 to $1,600 per child added by the March pandemic relief law phases out for individuals earning more than $75,000 and $150,000 for married couples filing jointly. The phaseout is $50 for each $1,000 above the income thresholds, so for example the maximum credit goes back to $2,000 per child for joint filers earning $170,000.
Under preexisting law, the $2,000 credit starts to phase out above $200,000 for individuals and $400,000 for joint filers. Once household income hits $240,000 or $440,000, the credit is reduced to zero.
The 2021 changes also made it so half the benefit is automatically paid in advance in cash each month, a policy meant to help the lowest-income Americans who may need the money sooner to pay bills, afford school supplies or for other critical expenses.
The 2017 tax law made the credit refundable for 15 percent of income above a $2,500 threshold, with the refundable portion capped at $1,400 per child. The COVID-19 bill dropped the threshold to zero and made the full tax credit amount refundable.
After this year, the benefit reverts to the 2017 law parameters. It shrinks down to $1,000 at most per child after 2025, when the GOP tax law benefits expire.
Biden’s plan would keep most of the latest expansion, including its value and advance payment schedule, through 2025. Full refundability of the benefit would be permanent under his plan, a cheaper piece of the expansion that helps it reach some of the Americans most in need.
All in all, it would cost almost $557 billion over a decade, according to the Treasury Department. Spending drops sharply after 2026, when only full refundability would remain in place. About $13 billion of that cost would be for keeping it fully refundable in the second half of the decade.
This is the same model that the New Democrats are promoting. There’s mounting concern it could be whittled down in the Senate, however, where West Virginia Democrat Joe Manchin III is demanding less spending in the overall package.
While the reconciliation process avoids a filibuster, Democrats will need every vote in the evenly divided Senate to pass the bill. CNN reported that Manchin wants a smaller expansion of the child tax credit and is discussing the issue with Bennet.
New Democrats are more concerned with what’s in the reconciliation package and less about topline spending, DelBene said. If the child tax credit fell by the wayside, she’d have “great concerns” about the overall bill.
Other House moderates could take a different stance. Ways and Means member Stephanie Murphy of Florida wants much of it paid for and voted against the panel’s reconciliation recommendations on Thursday, saying she has concerns and can’t judge pieces without seeing full tax and spending plans of the committee. Ways and Means has yet to release the bulk of its tax proposals.
Another moderate Democrat, Rep. Carolyn Bourdeaux of Georgia, singled out the cost of a child tax credit expansion this week during a virtual forum hosted by the Concord Coalition.
“There are all sorts of places where we can find ways to pay for these bills, but it’s going to be very challenging to do all of the priorities that we have in here,” Bourdeaux said. “The child tax credit alone, if we were to extend that over the full 10-year period, is $1.1 trillion. And that eats up that $3.5 trillion, assuming we can pay for it.”
Bourdeaux, who flipped a longtime GOP seat in suburban Atlanta last fall, is considered one of the most vulnerable Democrats in the 2022 midterms.
The child tax credit has other champions, including Rep. Rosa DeLauro of Connecticut, who has long pressed for a bigger benefit. Many Democrats have touted the current expansion of the tax credit in their home districts. Speaker Nancy Pelosi has appeared at events around the country celebrating it as the “Biden Child Tax Credit.” It’s a policy that some lawmakers may want to run on in 2022.
In July alone, the expanded credit kept 3 million children from living in poverty, according to a Columbia University projection released in August. DelBene said preserving the credit’s expansion would reduce child poverty to less than 10 percent in many states, and cut deep child poverty in half. She added that full refundability disproportionately benefits people of color and single moms.
Pelosi has said Democrats want to make the expansion permanent, but the cost is a problem. Part of the idea of the White House’s proposal is setting up a politically favorable situation for the credit to stay in place after this latest expansion ends.
Proponents believe that making the child tax credit fully refundable now and ending other enhancements after 2025 is the path to a bipartisan deal to ultimately keep the entire expansion.
There’s Republican support for the credit, but full refundability is politically vulnerable, Seth Hanlon, a senior fellow at the liberal Center for American Progress and a former congressional and White House tax aide, said in an interview.
Ways and Means ranking member Kevin Brady of Texas said in July that he was concerned the benefit was no longer dependent on recipients working. Less refundability previously meant a requirement to earn enough income to owe a certain amount of taxes.
Other Republican provisions of the 2017 tax law also expire after 2025, so aligning those dates could give Democrats leverage to preserve the child tax credit expansion. A three-year expansion is also on the table for reconciliation, Hanlon said. That would sacrifice that leverage.
If refundability is a question, Democrats might have to make more concessions to get Republicans to back it, or they might not be able to keep that piece of the expansion.
“As a matter of strategy, it’s smart to make refundability permanent,” Hanlon said. “But it’s also the most important in terms of economic security for low-income children, so the most deserving to be made permanent.”
David Lerman contributed to this report.