Tag Archives: child tax credit

Inside the fight for an end-of-year deal on the child tax credit

Originally published in Vox on December 5, 2022.
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In 2021, an expansion of the child tax credit delivered hundreds of dollars monthly to some 35 million parents across the United States, helping them afford gas, food, and school expenses, and lifting almost 3 million children out of poverty. But last December, Democrats narrowly failed to approve an extension of the expanded credit, and it expired.

Now, with only a few weeks remaining before a new Congress takes office, advocates for the child tax credit are trying again to get an expansion included in any end-of-year tax package.

It’s a tall order, especially because Democrats would need at least 10 Senate Republicans to agree to pass any broad deal; last year, even a simple Democratic majority proved out of reach. But Democrats believe the political dynamics have since changed in their favor, and so have their policy demands, making a compromise potentially easier for Republican moderates to stomach.

The sticking point since the expanded credit expired has been Republicans and West Virginia Democratic Sen. Joe Manchin’s resistance to the idea that a more generous child tax credit should go to families where no parents are working. 2021 marked the only time in its quarter-century history that the CTC had no parental work requirement, and it was that feature, experts agree, that drove the policy’s substantial reduction in child poverty: a stunning 46 percent drop in one year, according to US Census data. Until the Inflation Reduction Act passed in August, Democrats and their allies were unwilling to entertain any child tax credit expansion that maintained a connection to work.

Now, though, Democrats are signaling they’d embrace a more modest expansion — ideally one that keeps the credit fully available for all families, but at least makes it easier for parents with little to no earnings to access, even if at a reduced rate. Whether lawmakers can increase the amount of funding available for parents of infants and toddlers, as opposed to all kids under 18, is another option on the table.

The biggest negotiating card Democrats have right now is certain expiring business tax breaks. Since 1974, companies have been allowed to deduct research and development (R&D) spending the same year they make the investments, but as a budget gimmick included in the 2017 Tax Cuts and Jobs Act, businesses, as of 2022, now must expense those costs over five or 15 years instead. Restoring the right to annually deduct R&D spending is a top legislative priority of the business community.

Advocates are hoping to pair any restoration of R&D tax breaks with an extension of the child tax credit. In November, Democratic Sen. Ron Wyden, who chairs the Senate finance committee, declared his intent to push for both together while Democrats still control both chambers of Congress.

Democratic Sen. Sherrod Brown, chair of the Senate banking committee, has stated that expanding the CTC is his top priority. “I’ll put it this way, no more tax breaks for big corporations and the wealthy unless the child tax credit’s with it. I’ll lay down in front of a bulldozer on that one,” he said in September.

Additional aid for Ukraine, public health, and disaster relief are the Biden administration’s top priorities for any end-of-year deal, but in late November, Karine Jean-Pierre, the White House press secretary, said that if corporate tax breaks are included in a final deal, tax cuts “for working families” should be as well.

The negotiations ultimately may turn on just how much corporate lobbying pressure Republican lawmakers face. Prior to the midterms, Republicans anticipated much bigger electoral gains, making compromise with Democrats ahead of the new Congress seem less urgent. But now, with Democrats set to retain Senate control and Republican House margins tighter than expected, the expectation that Republicans would even be able to reach a deal on the business tax breaks next year if they wanted to looks dicey.

This reality, in fact, partly explains why Senate Republican leader Mitch McConnell announced last week that he’d like to negotiate an omnibus tax package in December, rather than a temporary spending deal that prevents a government shutdown but kicks the can on serious legislative decisions. Pushing the tax negotiations to 2023 would mean incoming House Speaker Kevin McCarthy, rather than current Speaker Nancy Pelosi, would be tasked with getting an acceptable deal through his chamber. “Nobody trusts McCarthy to pass anything (not even McCarthy),” quipped Politico in late November.

Though some advocates are still publicly calling for the expanded CTC of 2021, most acknowledge they’d accept more modest improvements

The 2021 expansion of the child tax credit, passed as part of President Joe Biden’s pandemic relief program, sent thousands of dollars to parents across the US. It made non-working and poor families fully eligible for the credit’s full value and increased the value of the subsidy itself — up to $3,600 per child.

Democrats had been optimistic that if they could just seed the generous program through the American Rescue Plan, then they would amass the kind of political support that makes a popular subsidy hard to repeal. But they failed, and the CTC is resultantly back to its pre-Covid form, with a maximum of $2,000 per child for working families only — and will remain there unless lawmakers change it.

At the heart of ongoing debates over the CTC are unsettled questions about what the policy is for. Is it to reduce childhood poverty? Is it to incentivize parents to work? Is it to help all kids?

Some Democratic lawmakers and CTC activists have been publicly calling for a reinstatement of the 2021 child tax credit, pointing to the research showing it helped families, reduced child poverty, and did not deter parents from working.

In late October, dozens of centrist Democratic lawmakers sent a letter to House leadership calling for an extension of the CTC passed under the American Rescue Plan. Theirs was followed by a similar letter, making the same ask, signed by dozens of progressive Democratic lawmakers. Another letter in November signed by over 550 hunger groups likewise called on congressional leadership to reinstate the child tax credit from 2021.

Adam Ruben, the director of Economic Security Project Action, a group organizing for the CTC, told me that advocates both in Congress and outside Capitol Hill are “crystal clear and aligned” in calling for the child tax credit that passed the House as part of their Build Back Better package, which mirrored the American Rescue Plan version. “That’s the version that’s most effective at reducing poverty, most effective at helping families with the high cost of gas and groceries,” he said.

Yet privately, most child tax credit champions admit they’d accept something less generous than the American Rescue Plan version, and in lobbying meetings they aren’t pressing lawmakers to hold the line, as they did during the reconciliation process. Even some lawmakers and advocates are saying this now publicly.

One option to expand the credit is to focus on the 19 million children under age 17 who currently receive less than the full $2,000, either because their parents earn too little to qualify or because they aren’t working at all. (These children are disproportionately Black, Latino, American Indian, or Alaska Native.)

Expanding the credit for those 19 million children — or, as policymakers say, making the credit “fully refundable” — would cost about $12 billion per year. But it’s not really the cost, advocates acknowledge, that’s the barrier to doing that. It’s that Manchin and Republicans believe it’s important for the credit to maintain some connection to working parents.

As a compromise, Democratic aides say they’re hoping they could make the credit at least fully refundable for parents of young children, or lower the amount parents need to earn to qualify for the credit’s full value.

“I have always believed that in the end this would be bipartisan, that it wouldn’t be just the way I had designed it, that the Republicans would make some changes to it,” Democratic Sen. Michael Bennet said recently on a Politico podcast.

Elyssa Schmier, a lobbyist with MomsRising, told me that while their long-term goal is to see a permanent extension of the child tax credit passed under the American Rescue Plan, what they’re hoping to see in a lame-duck deal “is first and foremost the inclusion of the child tax credit” and in a form that helps it reach as many families in need as possible. Schmier said their focus is not on increasing the value of the credit right now, but expanding it for low-income families currently barred by work requirements.

Rev. Jim Wallis, another child tax credit advocate who leads the Georgetown University Center on Faith and Justice, said he’s not expecting lawmakers to approve a permanent end to all work requirements in December, and said advocates are pushing for some kind of “expansion” targeted specifically to the poorest and most vulnerable families.

Most liberal activists right now agree with Schmier and Wallis that focusing on the credit’s anti-poverty potential is the most important piece. Other coalition letters have been careful to exclude mention of the 2021 child tax credit, so as to not imply they’re demanding the same policy they were calling for earlier this year. One congressional letter sent by five national civil rights organizations simply called to “expand the CTC,” as did another sent by a coalition of Christian churches and ministries.

The money elephant in the room

One reason many Democrats are trying to minimize discussion of the 2021 expanded child tax credit now is because it — and the version Democrats passed in their subsequent House Build Back Better package — is very expensive, with a price tag exceeding more than $100 billion per year.

“I love the CTC, but I think advocates have done a terrible job of acting like it costs peanuts,” said one Democratic aide working on the negotiations. “It gets you nowhere to pretend we can do this massive transformational thing for nothing. Like expectations here have just been so out of whack because none of the advocates would admit this massive expansion of child benefits costs a lot of money.”

Rather than focus on comparing dollar amounts between the child tax credit and the business tax breaks, CTC advocates have stressed lawmakers should focus instead on parity of time for benefits. In other words, if Congress extends R&D tax breaks for another two years, then they should extend the child tax credit in some form for two years, too. A spokesperson for the Chamber of Commerce declined to comment.

For now, Democratic aides say they’re waiting to hear more details from Senate leadership over how much money is on the table to work with at all. McConnell has previously insisted that any end-of-year tax deal must prioritize defense spending over domestic policies, given that Democrats have already passed major domestic policy bills this year, though Senate Majority Leader Chuck Schumer said he intends to fight this.

One crucial factor, according to Senate aides, will be if Republicans feel like they’re getting a fair trade — something that can be measured in terms of dollar amount, length of time, or even, frankly, just “vibes.” When House lawmakers first sent their letters in late October and early November calling for a reinstatement of the 2021 expanded CTC in exchange for business tax breaks, some Republican staffers felt Democrats were not making a serious offer, given that many Democrats also want the R&D credits extended. In other words, since Democrats weren’t coming out of the gate with any proposed cuts to their own priorities, it didn’t seem like a great deal to Republicans, or even a realistic threat.

Democratic aides I spoke with said the threat to vote against R&D tax breaks if not paired with the child tax credit is no bluff, and pointed to the fact that Democrats have stood resolved against approving the business tax breaks to this point despite intense lobbying pressure. “If the number of Democrats willing to support the Young-Hassan bill were compelling then this would have been passed by now,” one aide said, referring to a bill Sens. Todd Young (R-IN) and Maggie Hassan (D-NH) have tried to include in multiple legislative vehicles this past year.

Sam Hammond, the director of social policy at the Niskanen Center, a centrist think tank, thinks the chances of reaching a deal on the child tax credit this month are relatively slim, though he believes the results of the midterms increased its odds. “Even though Democrats lost the House, just having control of the Senate floor is, like, nine-tenths of the battle over what can be put on the floor and up for a vote,” he said. “I think if Republicans had swept, there wouldn’t be a tax package being discussed at all.”

Where are Republicans on this?

Conservatives opposed to expanding the child tax credit are sensing that a legislative deal might not be far-fetched, and have started to ramp up their opposition.

The Wall Street Journal ran an op-ed and an editorial against the CTC in late November, perhaps the clearest indication they recognize it’s time to fight. “The tax credit is a parable about good intentions, unintended consequences, and the insatiable entitlement state,” the Journal argued, citing new studies that estimate a permanent extension of the American Rescue Plan child tax credit would reduce economic output by 0.2 percent over a decade, and lead to 1.5 million people leaving the workforce.

In June, Republican Sens. Mitt Romney (UT), Richard Burr (NC), and Steve Daines (MT) introduced a new bill — the Family Security Act 2.0 — to distribute monthly cash payments to parents. The proposal is a modified version of a child allowance policy Romney introduced in 2021, though his new bill includes a requirement that families earn at least $10,000 to receive its full benefit.

The Republican proposal would mark a big expansion from the current child tax credit. It would increase the maximum value from $2,000 to $4,200 for each child under age 6 and $3,000 for each child ages 6 through 17, paid out in monthly installments.

Romney’s office declined to comment for this story, but the Utah senator told Semafor “it’s probably not going to be until next year that we consider new legislation” on the CTC.

Most other Republicans, though, are being more tight-lipped, and Ruben, of the Economic Security Project, says his conversations with Republicans suggest they’re keeping their negotiating options open for now.

“We’re talking to Republican offices that say they want to do more for families than current law provides, and when we say, ‘What’s your bottom line in terms of what you can or can’t accept?’ they say, ‘Well, I don’t know, it’s a deal,’” Ruben said. “They don’t say, ‘It has to absolutely do this,’ or has to be written in a certain way. It’s all more fluid in Congress right now than that.”

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Can the expanded child tax credit come back from the dead?

Originally published in Vox on April 28, 2022.
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Advocates for an expanded child tax credit (CTC) did not expect to be in this situation.

A year ago, when Congress passed an expanded version of the policy that’s been around with bipartisan backing since 1997, some 35 million parents across the US began to see hundreds of dollars land in their bank accounts every month — money that they could spend however they saw fit.

Economists and policy experts hailed the program, which, passed as part of Biden’s pandemic relief package, gave families the resources to buy household essentials like food, gas, and educational supplies. Researchers found little evidence that the new payments had discouraged parents from working, a perennial concern from opponents of welfare assistance. Within just six months, researchers estimated the expanded CTC payments had reduced the child poverty rate by 30 percent.

The new policy wasn’t perfect — even the expanded program wasn’t reaching America’s poorest parents, and about 1 million people opted out to avoid a smaller refund or higher tax bill come April. But the more robust CTC nevertheless led to a stunning drop in poverty, a long-term crisis that leaders often describe as intractable.

Yet, as Senate Democrats debated President Joe Biden’s $1.8 trillion spending package, the Build Back Better Act, December came and went, and with it the deadline to extend the expanded CTC. By January, the monthly payments expired, just as inflation was inching up. Though the CTC was only funded for one year, Democrats had been optimistic that if they could just seed the generous program, then they would amass the kind of political support that makes a popular subsidy hard to repeal.

“We were shocked,” said Otis Rolley, a senior vice president at the Rockefeller Foundation, who has been leading a coalition of groups to support the policy. “We really did think as American families were getting this credit, we really thought that December would come around and, based on the desire of their constituents, this would be made permanent.”

Democratic leadership could not reach a compromise with Sen. Joe Manchin (D-WV) that would address his concerns about the child tax credit. Moreover, Democrats weren’t willing to separate the CTC from Build Back Better to negotiate it independently, seeing it as important leverage to the broader package. BBB talks collapsed in December; the White House’s disconnect with Manchin overextending the CTC played a major role.

Now, four months later, the window to save the expanded CTC has narrowed. Manchin seems to be souring on a Democrats-only bill passed through the budget reconciliation process. And there are competing priorities on the congressional to-do list — including more Ukraine assistance and a China competition bill — to get through before summer recess and the midterm elections.

Among CTC advocates both outside and within Congress, there’s a quiet, almost paralyzing crisis playing out these days behind the scenes: Should they keep pushing for an expansion that meets all their top criteria, and fight for every child, or do they make clear what they’d be willing to compromise on and hopefully get something through reconciliation or on a bipartisan basis?

In the fall and winter, advocates took a hard line — there was no appetite to negotiate over a less ambitious CTC. One leader involved in a large coalition of groups mobilizing for the CTC, who requested anonymity for fear of getting his organization booted from the coalition, told Vox their fellow activists erred, making “a giant miscalculation that we had nothing to lose if we held out for more.”

“Because we couldn’t help everybody at once, we’re helping nobody,” they added.

In addition to the practical time constraints, congressional leaders, Biden, and even CTC advocates are now struggling to act, or even grapple with how political conditions have changed since December. Republicans, for their part, have little interest in helping Democrats ahead of the midterms, and as much as Democrats and activists say the expiration of the CTC payments presents an urgent political crisis, they also face incentives that encourage them to do nothing.

To insist their hands are tied and it’s all Manchin’s fault, it turns out, is the path of least resistance.

Can CTC advocates pivot?

It’s worth understanding how negotiations over the important program broke down last year because many of the dynamics haven’t changed.

In November 2021, the House of Representatives passed Biden’s $1.8 trillion BBB package, which included a one-year expansion of the CTC. But in the Senate, Manchin raised three main objections that held up the legislation.

The first: The West Virginia senator opposed the number of affluent families who could claim the credit (an upper income limit of $400,000 set originally by Republicans). He also disliked the one-year extension proposal, rightfully suspecting many of its backers wanted to make the CTC permanent down the road, and he worried about that cost. Perhaps most significantly, Manchin made clear that he wanted to reinstate a work requirement for the CTC, something hotly opposed by many Democrats who recognized this would once again exclude some of the poorest households from claiming the credit’s full value.

Coming back from the winter holiday, leading Senate supporters of the expanded child tax credit vowed to keep fighting, insisting a path through reconciliation was still there. Yet it was clear the fight, at the very least, had changed. Manchin previously indicated he was open to a deal on BBB between $1.5 trillion and $1.8 trillion, but since he opposed including temporary provisions, Democrats had to wrestle with the fact that a decade expansion of the CTC could eat up at least $1.4 trillion of their wiggle room.

Biden began signaling that his hopes had dimmed on Congress passing a CTC extension through reconciliation, which would require all 50 Democrats to pass. In a January press conference, the president said he was confident “we can get pieces — big chunks — of the Build Back Better” package signed into law, but conspicuously omitted mention of the CTC as one of those pieces.

Yet Biden resisted declaring his CTC vision dead. This has allowed many advocates to cling to the belief that it’s in fact alive. In some ways it’s a shrewd tactic from the president; if Biden did come out and say what most experts believe at this point to be true, he could face intense criticism from his base for giving up or failing.

Indeed, there have been dozens of state, local, and national groups organizing for the expanded child tax credit — some through coalitions like the aforementioned Rockefeller-led one, and through another called the ABC Coalition, led by the national Children’s Defense Fund. For the last year these umbrella groups have largely adopted the same strategy: Hold the line on maximal inclusion for poor and non-working families, spread awareness about the research studies showing the CTC reforms made a meaningful difference in 2021, and ramp up pressure tactics on Manchin, like highlighting how many children — including some 50,000 from West Virginia — could slip into poverty without the extension.

Plus, new polls were coming out that showed not reinstating the payments could hurt Democrats politically. One Morning Consult/Politico poll, released in February, found that 75 percent of voters who received the expanded credit said the halted payments affected their financial security. Another survey released by the left-leaning Data for Progress and Groundwork Collaborative found that likely voters had lost trust in Democrats to support families with children when they heard the expanded CTC had expired.

Armed with all this data, advocates maintained, Manchin would surely come around. But as April nears its end, negotiations over a new reconciliation bill have yet to even start. Within the advocacy coalitions, some have started to quietly grumble that maybe it’s time to rethink their strategy for the first time in over a year.

But groups that break from the consensus position do so at their own risk. In early February, Patrick Gaspard, the president of the liberal think tank Center for American Progress, published a memo where he dared to say the quiet part out loud: “It is abundantly clear that the Build Back Better Act that passed the House has no path to becoming law,” he wrote. Still, Gaspard argued, it’s not too late to get something meaningful through, and he outlined three areas — lowering health care costs, tackling the climate crisis, and lowering child care expenses through investments like universal pre-K — as places where lawmakers could likely agree to a deal. The CTC was notably not listed. “Let’s be disciplined, pass a package where there is a way forward,” Gaspard wrote.

While the Center for American Progress had been an active member of the ABC Coalition for the last year, following Gaspard’s memo, the coalition voted to boot the think tank from their group. In a March email reviewed by Vox, their steering committee wrote “while members are free to advocate for outside priorities and even alternative child allowance proposals, we determined that CAP’s decision to put their full weight behind a legislative plan that forecloses the possibility of extending the CTC violated this coalition’s working agreement.”

The ABC Coalition did not return requests for comment, but Seth Hanlon, a senior fellow at the Center for American Progress, told me they didn’t mean to say they should stop fighting for a child tax credit. “The purpose of the memo was the sharpen Democrats’ focus and essentially say don’t fumble this opportunity that exists,” he said.

Chuck Marr, the vice president for Federal Tax Policy at the Center on Budget and Policy Priorities, another liberal think tank, told me advocates like him should stay focused on a potential Senate reconciliation bill to pass some type of expanded CTC. “Making laws is always uncertain,” Marr said. “You want to explore any possible path to provide this crucial support that will help low-income families … [and] first, you should pursue the immediate path as aggressively as you can. If you don’t get it then look at other strategies.”

It’s ultimately about elected leadership, not activists

If advocates really want to pass reforms to the child tax credit, some within the CTC coalitions have quietly suggested their groups clarify what compromises they’d be willing to accept, and make clear to lawmakers that they’d publicly support those who fought for such compromises.

These were lessons learned by environmental and health care advocates who came close to passing universal health coverage under President Bill Clinton and cap-and-trade under President Barack Obama, only for it to end in a massive defeat. One CTC advocate, speaking on the condition of anonymity, observed that since the broad “care coalition” that has mobilized over the last few years for policies including the CTC, universal home care, universal pre-K, and paid family leave has never really experienced a comparable legislative defeat, they’ve never had to critically reflect on their strategy.

“Defeat sharpens the mind,” they said. “Rather than figure out how to do a work requirement that was tiny enough that you could get the most amount of families covered, they’ve instead insisted on doing pressure tactics that we’ve seen do not work with Manchin.” The advocate said this dynamic speaks to progressives’ “obsession with getting the language perfect rather than getting the policy changed.” Allowing Manchin to tell his largely conservative constituents that he was restoring a work requirement, for example, could give Democrats room to then craft the tiniest work requirement possible.

Most organizations say it’s simply not their job to advocate a compromise — that they should push for the most inclusive policy for as long as they can. And to an extent, it certainly makes sense why predominantly progressive groups would not be willing to entertain, let alone craft, a settlement deal.

While most compromise proposals would keep the new monthly payments for at least 80 percent of beneficiaries, the families with the lowest incomes that likely would have been hit are largely represented by these advocacy organizations.

Activists are completely right that it’s the job of elected officials to negotiate an agreement, though the reality is that Democrats will face less backlash from advocacy groups if they don’t reach a deal with Manchin than if they do. Any pared-down deal will inevitably be blasted by allies, and the message senators are hearing from activists is to hold the line.

One of the few advocacy groups that have been pushing for a compromise has been Humanity Forward, founded as an offshoot of Andrew Yang’s presidential campaign.

Greg Nasif, the group’s political director, told me he thinks that while lawmakers who negotiate a compromise would at first “face resistance” from activists and members within their party, “in the long term they would be celebrated for finding a way to get this program restarted.”

It’s also possible that it’s too late for a deal to be struck through reconciliation. Though Samantha Runyon, a spokesperson for Manchin, told me her boss “continues to support policies that reward hard-working families as the effects of costly inflation taxes strain their budgets,” she also said Manchin believes “any change to our social safety nets should move through regular order.” On Monday, Manchin met with Republicans to discuss a bipartisan energy package, raising new questions of whether a Democratic social spending bill remains on the table at all.

I asked four of the leading Democratic CTC champions in the Senate — Michael Bennet of Colorado, Ron Wyden of Oregon, Raphael Warnock of Georgia, and Sherrod Brown of Ohio — if they were prepared to push for compromises with Manchin to reach a deal, and what such compromises might look like if so.

Wyden was the clearest in saying yes, though he declined to get into details, citing sensitivities of the negotiations. “I’ve said since December that I would be willing to make changes to get Senator Manchin on board,” he told me. “We need his vote. There’s no way around it. There have been many conversations along those lines in an effort to make progress.”

Brown reiterated to me the importance of extending the CTC expansion to cope with rising costs. “I’ll keep working with all of my colleagues until an extension of the expanded CTC is signed into law,” he said.

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Warnock’s office didn’t return a request for comment, though the senator had publicly refused the notion of a work requirement for a CTC deal back in February.

Bennet’s position — if you read between the lines — was the most revealing. While he has indicated multiple times that he’s open to lowering the CTC’s upper income threshold (one of Manchin’s priorities, and one that would mean an effective tax increase on the wealthiest beneficiaries), Bennet has continued to distance himself from Manchin’s top demand for a work requirement, and cast the West Virginia senator as the sole obstacle to an extension.

“Nothing would make me happier than doing the right thing and passing a reconciliation bill that lifts millions of children out of poverty, ” he told me. “There is an opportunity in reconciliation, but whether there are 50 votes is a real question. It is likely given that recalcitrance of some people in the caucus — or maybe one person in the caucus — that the path for a permanent solution is going to have to be bipartisan, and I’ve been having good discussions about that over many months.”

Yet a work requirement is a top condition for virtually the entire Republican caucus.

How realistic is a bipartisan deal?

Convincing just one Democrat to get on board through reconciliation seems easier than striking a deal with at least 10 or 11 Republicans, but calls to look across the aisle have grown louder in recent weeks as negotiations for a social spending bill stall. This case was made most prominently in the New York Times earlier this month by Samuel Hammond, the director of poverty and welfare policy at the Niskanen Center, a centrist think tank. Hammond argued that working on a bipartisan basis was “the most viable path forward” and that there are “plenty of reasons to believe” the bipartisanship demonstrated around the infrastructure bill could be replicated for the CTC.

Any compromise, he wrote, would need to balance Republicans’ commitment to having some connection to work and earnings with Democrats’ commitment to maximal inclusion for low-income people.

Hammond floated the idea of providing an unconditional monthly benefit to parents of young children — those parents with higher poverty rates and upfront expenses — along with a larger credit tied to work for parents of school-age children. “An unconditional child benefit for infants is unlikely to face serious Republican opposition,” he predicted.

Part of the case for bipartisan compromise is rooted in how much movement there’s been within the Republican Party on family policy over the last five years. Back in 2017, Sen. Marco Rubio (R-FL) drew scorn from conservatives when he threatened to vote against the Trump tax bill if his party wouldn’t agree to an amendment he sponsored with Mike Lee to increase the child tax credit.

“I think people really forget the resistance to the CTC expansion in 2017,” said Wells King, the research director at American Compass, a center-right think tank. “Just go back and see what the Wall Street Journal editorial board was posting at the time, all these arguments about why we shouldn’t have specific tax breaks for families.” Wells recalled one WSJ op-ed in particular that mocked the Rubio-Lee proposal derisively, suggesting Republicans instead pursue a canine tax credit to woo millennials. “I can’t fathom that kind of piece being written in today’s political environment,” King said.

Since 2017, two more GOP family policy proposals have been introduced — from Mitt Romney and from Josh Hawley. The Republican Party has also spent much of the last year mobilizing in response to Democrats’ expanded CTC, stressing how their ideas to help families — which link benefits to work — are better than Democrats’.

Even Romney, the one Republican who made waves last year for opposing a work requirement, has changed his tune.

King says Republicans’ positions are backed by public opinion research. American Compass found white, college-educated Democrats were the only demographic that expressed majority support for maintaining the expanded credit with no connection to work. Focus group research of working-class parents in southeastern Ohio, Atlanta, and San Antonio yielded similar results.

Even with this kind of data, many Democrats would be loath to agree to a work requirement that could exclude the poorest, and advocacy groups would no doubt fight against one. As a result, odds are increasing that Democrats will just wait until after the midterms, when they can blame the passage of a work requirement on Republicans taking control of Congress.

The political cost of inaction

Not being able to reach a deal on the child tax credit before the midterms could make an already grim-looking situation for Democrats worse. A survey released in early April found that among parents who received the expanded CTC, 46 percent were more likely to vote for a Republican in November, compared to 43 percent likely to back a Democrat. This divide stands in stark contrast to December, before the payments expired, when Democrats held a 12-point lead among those parents.

Even among those who do think there is room for bipartisan agreement, some experts suspect it’s unlikely to happen before November.

“I know there is an appetite to see if a deal could be struck, but I’m not sure this is the right political environment with the midterms coming up,” said King, of American Compass. Another advocate with knowledge of the CTC negotiations in Congress told me Republicans are unlikely to work on any child tax credit deal until they believe that Democrats’ reconciliation efforts are dead.

Still, Hammond argued, if Biden called a Rose Garden press conference to urge Congress to pursue a bipartisan path forward on the CTC, inviting Romney and Manchin and others to stand beside him, that would certainly add pressure to lawmakers in his party. There are political tactics the president, or congressional leaders, could still try.

For now, the legislative clock is ticking, and the easiest thing for Biden and other Democrats to do might be to insist their hands are tied because of Manchin. That’s certainly the approach Biden took last Friday when, speaking at a press conference in Auburn, Washington, he said of the child tax credit — “We lack one Democrat and 50 Republicans from keeping it from passing this time around.”

This sigh-and-blame-Manchin strategy is unlikely to face blowback from the CTC advocacy community, but families struggling with rising costs may find it aggravating to see Biden and Democrats with congressional majorities effectively giving up.

A spokesperson for the White House pointed me to Biden’s remarks from January: “The president said at his press conference that he would fight for every piece of his agenda, including what may not make it into the bill, for his whole time in office.”

Does the Earned Income Tax Credit Deliver?

Originally published in The American Prospect on May 26, 2020.
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As tens of millions of American workers file for unemployment amid the global economic and public-health crisis, we are reminded of how much of the nation’s welfare system is tied to jobs. This is not only true with employer-sponsored health insurance and other benefits, but with a lesser-discussed feature: the Earned Income Tax Credit (EITC).

The EITC is the largest federal subsidy for low-income workers. It’s a refundable credit that workers generally get in an annual lump sum when they file taxes. For childless low-income workers, the benefit is pretty small; in 2019, it maxed out at $529. But for low-income parents with children, it can rise as high as $6,557, depending on how many kids they have and how many hours they worked. About 22 million workers received EITC benefits in 2018, and it’s credited with lifting 5.6 million Americans out of poverty.

The EITC is also distinctive for being unusually popular among both parties. Democrats are fans because it gets more money to the poor, while Republicans like it because it rewards work. During the recent Democratic presidential primary, all the major candidates except Andrew Yang supported expanding the EITC, and in Congress, almost every Senate Democrat has signed on to a bill that would bolster it. In 2017, Gordon Berlin, then-president of the think tank MDRC, told The New York Times that he sees expanding the EITC as the best policy to pursue if one wanted to cut poverty.

But while the political class continues to rally around the EITC, their enthusiasm overlooks an ongoing debate among left-of-center policy wonks that has picked up steam over the last year. Some new research finds significant shortcomings with the EITC as a poverty-reduction tool; others have rebutted that critique. With a potential Democratic majority poised to return to this framework for aiding the working poor, the debate could clarify whether there are better options to reach that goal.

Last summer in the Prospect, New School economist Teresa Ghilarducci and her graduate student Aida Farmand laid out one critique: They argued that while the EITC does increase labor participation among the poor, it also effectively acts as a subsidy to low-wage employers and bears responsibility for driving down American wages overall.

A few months later, Princeton economist Henrik Kleven made a very different argument, in a working paper published by the National Bureau of Economic Research. Kleven argued that, contrary to popular consensus, the EITC is not responsible for increasing labor force participation at all. Specifically, he argues that the large increase in employment among low-income women in the mid-1990s, which is generally attributed to the 1993 EITC expansion, was actually driven by contemporaneous welfare reforms and the decade’s booming economy.

Most EITC experts have dismissed the concern that the tax credit may exert downward pressure on wages. If true, it doesn’t outweigh its benefits, and just underscores the need for a robust minimum wage, the theory goes. “If you put a strong minimum wage and a good EITC you get the best of both worlds,” said Bob Greenstein, the founder and president of the Center on Budget and Policy Priorities.

But while the political class continues to rally around the EITC, their enthusiasm overlooks an ongoing debate among left-of-center policy wonks that has picked up steam over the last year. Some new research finds significant shortcomings with the EITC as a poverty-reduction tool; others have rebutted that critique. With a potential Democratic majority poised to return to this framework for aiding the working poor, the debate could clarify whether there are better options to reach that goal.

Last summer in the Prospect, New School economist Teresa Ghilarducci and her graduate student Aida Farmand laid out one critique: They argued that while the EITC does increase labor participation among the poor, it also effectively acts as a subsidy to low-wage employers and bears responsibility for driving down American wages overall.

A few months later, Princeton economist Henrik Kleven made a very different argument, in a working paper published by the National Bureau of Economic Research. Kleven argued that, contrary to popular consensus, the EITC is not responsible for increasing labor force participation at all. Specifically, he argues that the large increase in employment among low-income women in the mid-1990s, which is generally attributed to the 1993 EITC expansion, was actually driven by contemporaneous welfare reforms and the decade’s booming economy.

Most EITC experts have dismissed the concern that the tax credit may exert downward pressure on wages. If true, it doesn’t outweigh its benefits, and just underscores the need for a robust minimum wage, the theory goes. “If you put a strong minimum wage and a good EITC you get the best of both worlds,” said Bob Greenstein, the founder and president of the Center on Budget and Policy Priorities.

The debate got a new jolt last week when Matt Bruenig, the founder of the People’s Policy Project think tank, put out a new, highly critical paper on the EITC. Bruenig cites Kleven’s work to show that the EITC does not increase labor supply, and he also argues that the tax credit’s administrative costs have been understated (mainly because they don’t take into account the private administrative costs of tax preparers that the majority of EITC beneficiaries use), while its poverty-reduction impacts have been overstated (by 47 percent, according to his calculations). Bruenig cites a 2019 Census study that also found the EITC overstated its impact on reducing poverty. He argued in Jacobin that Democrats “should abandon their EITC fetish.”

Steinbaum praised Bruenig’s paper for “putting the received wisdom of the EITC in a more questionable light.” Claudia Sahm, the director of macroeconomic policy at the Washington Center for Equitable Growth, called Bruenig’s arguments “thought-provoking and dangerous.”

Not everyone was taken with Bruenig’s arguments. Some criticized him for treating Kleven’s paper as dispositive, and others argued that his estimate of the EITC’s administrative costs—11 percent—was dubious. A different Rothstein estimate, which also accounted for private tax prep, clocked EITC administrative costs at about 5 percent. John Wancheck, an EITC expert at the Center on Budget and Policy Priorities, said the data underlying the Rothstein estimate is likely more reliable and reflective of national trends.

Rothstein, Greenstein, and Edin all told the Prospect they believed Bruenig had overstated the importance of his mismeasurement critiques.

Bruenig argues in his paper that it’s problematic that the Current Population Survey—which is sponsored by the Census and the Bureau of Labor Statistics—counts EITC benefits received in the subsequent year as having been received in the current year. In doing so, he argues, the survey makes the EITC appear more perfectly targeted to those in poverty than it really is.

Greenstein told me he doesn’t find that objection “very important” and thinks it’s given too much weight in Bruenig’s paper. Edin agrees that “it’s a technicality that I don’t think means very much.” She said in order to believe it was important, one would have to believe there was a serious difference between those who are living just above and just below the poverty line. Rothstein echoed them in saying, “I have a hard time believing it matters.” The researchers also pointed to evidence not included in Bruenig’s paper, like that the EITC has had significant benefits for children, and that many beneficiaries like that they can use their tax credit as an annual forced-savings vehicle, rather than a monthly wage supplement.

In an interview, Bruenig defended the mismeasurement critiques, saying they directly challenge the idea that the EITC is a “well-targeted program.” He also said that how policymakers measure the EITC’s effectiveness contrasts with how they measure the effectiveness of other welfare programs like food stamps, which evaluate uptake in the current year. “The [evaluations] have to be comparable,” he said. “And if you want to defend the EITC on the basis that a lump-sum payment can be beneficial to the poor, well that’s different than saying it’s a well-targeted program.”

KLEVEN AND BRUENIG both cite one piece of evidence as a reason they believe the EITC has been overhyped when it comes to incentivizing work. They argue that there’s no real proof that low-wage workers who were already employed then increased their hours to access more of the benefit, or phased out their hours once they had reached the maximum benefit. In economics jargon, this is known as an “intensive margin effect.” Even Rothstein agrees there’s been little good evidence for this, though he notes it’s a bit harder to study.

“How can it be that the EITC influences whether people work or not but does not influence how much they work?” asked Bruenig. “Defenders just wave away this question and say it’s ‘informational frictions.’”

Edin, for her part, says that when she did her qualitative research for her 2015 book, It’s Not Like I’m Poor, she found that while very few low-income people could name the EITC, virtually everyone she met knew they got a tax refund that was associated with their kids and that they had to work to get it. “People generally understood the more you work the more you get,” she said, later adding that no survey she knows of has asked that question.

With millions now losing jobs or seeing working hours reduced, problems with the EITC are cropping up. First, households generally receive the EITC as a refund in February and March, meaning it’s not something people can turn to if they face an unexpected crisis later in the year. And if they’re unable to find work in a depressed labor market, they won’t receive any assistance at all.

“It’s targeted and very effective at raising people’s incomes for low-income taxpayers … but it is not designed to be an effective recession stabilizer for families,” said Hilary Hoynes, a professor of public policy and economics at UC Berkeley.

In the aggregate, researchers find that EITC usage doesn’t vary all that much across economic cycles. But Hoynes says this obscures what actually goes on. During recessions, low-income workers may lose all their earnings, and therefore all their EITC benefits. Meanwhile, higher-income households that were not previously eligible for the EITC may suddenly “drop in” to eligibility, as they face a reduction in their own earnings.

AWARE THAT MANY workers in poverty or on the brink of it could soon lose their EITC, House Democrats included a provision in their latest proposed stimulus package, the HEROES Act, that would allow workers to substitute their 2019 earnings in the 2020 tax year. In other words, a middle-class household that was newly eligible for the EITC could still claim it with their 2020 earnings, but a low-income worker who lost their job could claim the EITC using their 2019 income status.

Other temporary modifications in the HEROES Act include expanding the EITC for workers without children (by nearly tripling the maximum benefit to $1,437) and expanding age eligibility.

It’s not clear how hard Democrats plan to fight for these measures—they’ve already stated that the HEROES Act is just a starting point for negotiations with the Senate. But these are not the only poverty-reduction programs on the Democratic side that use the EITC model. The Working Families Tax Relief Act—a bill led by Sens. Sherrod Brown (D-OH) and Michael Bennet (D-CO)—would substantially increase the size of the EITC, and has nearly every Senate Dem signed on as a co-sponsor. Rep. Ro Khanna (D-CA) and Brown introduced an even bigger EITC expansion bill in 2017, the GAIN Act, and Sen. Kamala Harris (D-CA) has her own version, too, the LIFT Act.

“The EITC is one of the largest anti-poverty programs that exists in America and it also needs to be strengthened, which is why I introduced the Cost of Living Refund, which would lift millions more American families and individuals into the middle class,” said Rep. Khanna, adding that the EITC can’t stand alone and we need a higher minimum wage, stronger union protections, and other safety net programs. “This crisis underscores the dire need for more anti-poverty programs, and I’m reviewing the latest research on how we can make the EITC more effective and what other approaches we can pursue to combat the scourge of poverty.” The offices of Sens. Bennet, Brown, and Harris did not respond.

The debate over the EITC won’t be ending anytime soon, though all involved agree that improving the EITC alone, or scrapping it, would not be enough.

Kleven told Vox’s Dylan Matthews last year that even if the EITC doesn’t incentivize labor participation, that doesn’t mean it’s a bad policy, as it would also suggest the EITC is not driving down wages as Ghilarducci and Farmand argued. It would make the EITC “a pure money dump on the working poor that doesn’t come with any labor supply distortions,” he said.

But Bruenig says that if the EITC doesn’t actually drive labor force participation, then it’s even more immoral to phase in the tax benefit to the working poor, instead of giving it to all low-income households. He argues in his paper for replacing the EITC and the Child Tax Credit with a universal monthly child allowance, though he told me he’d also support an EITC that had no connection to the number of children one has. “It’s not ideal, but I would be OK with that,” he said.

Greenstein said his decades working in tax policy have given him no reason to think that scrapping the EITC will then drive more money to poor people with no earnings. Getting rid of it is not the answer, he argues, but he agrees there needs to be more money channeled to low-income families. Rather than a child allowance that extends to the top of the income scale, the Center on Budget and Policy Priorities backs bolstering the Child Tax Credit for families earning up to $200,000 or so. “We don’t have to choose,” Greenstein said. “We should do both.”