To save child credit expansion, Democrats ready shorter renewal

Key moderates say benefit should be tailored to neediest; others worry that could break promise not to raise taxes on middle class

Sen. Michael Bennet, D-Colo., says "difficult choices" on the child tax credit are necessary. (Tom Williams/CQ Roll Call file photo)
Sen. Michael Bennet, D-Colo., says "difficult choices" on the child tax credit are necessary. (Tom Williams/CQ Roll Call file photo)
Posted October 22, 2021 at 7:31pm

Democrats are facing the possibility of a much shorter extension of an expanded child tax credit they’ve touted than many had hoped, which could ultimately stave off cuts to other aspects of the benefit they are fiercely defending.

As negotiators work to trim the House’s budget reconciliation bill from a $3.5 trillion-plus package to somewhere closer to $2 trillion, the $556 billion expansion of a tax break meant to help cover the costs of raising children and reduce child poverty is likely to end up less ambitious than lawmakers planned.

Sen. Joe Manchin III, D-W.Va., has pressed to add work requirements and means test the benefit to target it only to those most in need. But staunch support for getting the benefit to the poorest Americans and discomfort with taking it away from higher earners because of President Joe Biden’s pledge not to raise taxes on anyone making under $400,000 may make a one-year expansion the compromise Democrats can get behind.

“We are going to have to make some difficult choices as the bill gets smaller,” Sen. Michael Bennet, D-Colo., said in a recent interview, of possible cuts to child care programs in the bill. “I hope in that context we prioritize our children.”

Democrats expanded the child tax credit in their March coronavirus relief law and most are now looking to preserve the broader accessibility and bigger, monthly checks they legislated for 2021. Bennet, a lead proponent in the Senate of expanding the child tax credit, described that expansion as “one of the best things the Biden administration has done.”

Democrats have pointed to studies showing the expansion cut child poverty rates. The monthly installments aim to help people living month-to-month find stability and afford necessities such as food, bills and school supplies. Most Democrats are unwilling to entertain Manchin’s suggestion of work mandates, arguing that would cut out single parents or grandparents and undercut the benefit’s impact on poverty.

It was Biden himself who first floated the option of a one-year extension of the credit to Democrats, lawmakers have said, with some suggesting it’s a move to get a deal on the reconciliation package done after weeks of negotiations and to preserve broader accessibility and value of the credit.

Nevada Rep. Steven Horsford said this week that “99.9 percent of Democrats” understand the importance of expanding the child tax credit in full to help middle-class families.

Biden is “trying to do the best that he can. I get that,” Horsford said. “But we need to again recenter the people who are affected by the policy. And in my district that’s working families — a lot of them single moms with children who have received a lot of benefit from this tax cut already.”

$400,000 promise

There appeared to be some openness in recent weeks among senators to lowering the income threshold for eligibility to the credit to get a deal with Manchin and protect the rest of the expansion. But Biden’s $400,000 pledge is complicating that option, which would roll back a Republican-drafted policy.

The 2017 GOP tax law boosted the tax credit to $2,000 per child under the age of 17 through 2025 and extended it to individuals making $200,000 and married couples filing jointly with $400,000 in income, phasing out at a rate of 5 percent for each dollar of income above the thresholds.

As part of the March pandemic aid law, Democrats then added an extra $1,600 per child under 6 and $1,000 per child ages 6 through 17, which phases out for individuals making over $75,000 or joint filers earning over $150,000, among other changes.

Sen. Sherrod Brown of Ohio, a lead proponent of the expansion, said in recent weeks that limiting income levels as part of a deal wouldn’t change the program's impact. Sen. Chris Coons of Delaware said on Fox News that making sure people earning $300,000 or $400,000 per year don’t get the benefit could be a compromise point for Democrats.

One House Democrat has made getting below $400,000 a demand. Rep. Jared Golden, D-Maine, said in a letter Thursday to Democrats in his home state’s legislature that the child tax credit should be pared back to only benefit those most in need, criticizing the GOP expansion.

“Currently, the proposal would benefit joint filers making as much as $400,000 per year, which is far beyond the income range of working- and middle-class families this credit was originally intended to help,” Golden wrote.

But others said they wouldn’t cross Biden’s $400,000 pledge.

“I would not support burdening middle-class families that are already struggling to get these priorities done when we have billionaires in this country who don’t pay any taxes,” said Georgia Sen. Raphael Warnock, who won a tight special election in 2020 and faces reelection next year.

Golden and Warnock are considered among the most vulnerable Democrats in their respective chambers in the midterm campaign.

Horsford, who recently met with the president, Manchin and other lawmakers at the White House, said in a recent interview that Biden argued if the child tax credit expansion expires at the end of the year, it would mean a tax increase on families.

Horsford, another top 2022 GOP target, said 97 percent of his constituents with children qualify for the expanded credit and he wants to keep it that way.

“For Sen. Manchin or anyone else to suggest that we should means test this program, my question would be, are you going to means test the corporate subsidies that are given to big oil companies?” Horsford said. “Are you going to means test tax breaks for very wealthy people and billionaires? I am so sick of the discrimination and the targeting of working families.”

Rep. Dean Phillips said the president’s pledge is a factor as his party settles on how to include the child tax credit expansion in reconciliation.

“I think the $400,000 threshold relative to any increased burden has been pretty articulated time and time again, and makes it very difficult to change that now,” the Minnesota Democrat said. “I would suspect that that’s going to be a pretty hard line.”

Ways and Means Chairman Richard E. Neal, D-Mass., said this week that his committee’s plan for the benefit factored in these sorts of questions.

“We thought that rather than have an argument that you're taking something away from me to give it to somebody else, that we would move the ceiling up on what it might be ordinarily,” Neal said.

Silver lining

Expanding the child tax credit in full as Democrats proposed would cost about $106 billion for 2022, according to a Joint Committee on Taxation estimate, and that timeline could be an attractive one for the vast majority of Democrats who’ve said they want the expansion to be permanent.

That’s because it would tee up an expansion after the 2022 midterm elections, but before the next Congress when Democrats could lose control of one or both chambers. Republicans might scrap certain aspects. For example, Democrats expanded eligibility to undocumented immigrants by dropping a requirement that children have social security numbers to qualify, and Republicans have criticized full availability to people who don’t have income.

Ways and Means’ ranking Republican Kevin Brady of Texas said this week that expanding certain aspects of the benefit hurt the economy, slow recovery and mean fewer jobs are filled. He said making the GOP expansion permanent and preserving an “incentive to work” would be better than preserving what Democrats do in reconciliation down the line.

Phillips said it might be easier to extend the expansion next year, “but we don’t come here to do easy. We come here to do what’s right and best.” Still, he said a year is “better than nothing” and that Democrats must do what’s possible too.

Fully refundable

The goal, for most Democrats including Biden, remains that their monthly, bigger and broader checks for parents and other primary child caretakers be permanent. In the reconciliation bill, Democrats could still make a critical piece permanent: full refundability, preserving a key feature in their effort to reduce poverty and address racial inequity.

Full refundability means people with incomes low enough that that they owe little or nothing in income taxes can still get checks for the full amount they’d otherwise qualify for.

It’s a less expensive piece of the proposal, especially as the full value of the child tax credit is set to wane after 2025 under current law.

But it packs a big punch. The 2021 child tax credit expansion is expected to reduce child poverty by more than 40 percent, and more than 80 percent of that drop would come from full refundability, according to the left-leaning Center on Budget and Policy Priorities.

Bennet this week emphasized to reporters that he hopes full refundability will be permanent in Democrats’ final package, and that a one-year extension of the rest of the expansion means Democrats will have to press for it sooner.

“We’ve always known that we’re going to have to have that fight,” he said.

Lindsey McPherson contributed to this report.