The Child Tax Credit today is a more effective anti-poverty measure than it was before the Recovery Act made more parents eligible to claim it. But it’s still got limits that make it less effective than it could be, even given the practical constraints of public policy reforms.
My last post summarized the limits and a pair of Republican proposals for boosting the credit. Here, as promised, are proposals from more progressive quarters, plus a couple that go at child-raising costs through a different tax credit.
The Democratic party platform supports expanding the CTC, either by making more of it refundable or by indexing it so that it won’t continue losing real-dollar value. The latter presumably refers to the maximum parents can claim — frozen at $1,000 per child since 2001 and thus worth about a third less.
Democrats in Congress have proposed more ambitious reforms. Colorado Senator Michael Bennett introduced a bill last year that’s, to my knowledge, the most ambitious.
It would eliminate the $3,000 earned income threshold for claiming the credit and index the credit to inflation, making it, in both respects, like the Earned Income Tax Credit. It would also triple the value of the credit for children under six.
These reforms borrow from recommendations by the Center for American Progress. CAP, however, would restrict the more ample credit to children under three and boost it less.
The boost, it says, will help families “when their needs are greatest.” A two-pronged rationale for this. First, parents are in the early stages of their careers and perhaps saddled with student loan debt.
Second, they’re suddenly faced with substantial new expenses, e.g., diapers, cribs, car seats. Perhaps also, though unmentioned, with the inordinately high cost of childcare for infants and toddlers — on average, $11,666 a year nationwide for those in centers.
More recently, Congressmember Rosa DeLauro and two cosponsors introduced a bill that also adopts some of CAP’s recommendations. It would provide the same boost — one-and-a-half times the regular CTC to parents with children under three.
And they’d receive it as a sort of cash allowance, paid monthly or as often as the Treasury Department deemed feasible. So they’d have the extra money when they needed it, rather than a lump sum once a year.
A broader anti-poverty bill just introduced by Senators Cory Booker and Tammy Baldwin would also index the CTC. It would make the tax credit fully refundable for all families, while targeting it the poorest. We’ll need to await a posting to learn the details.
Clinton herself has focused on childcare costs. She’d cap them at 10% of a family’s income through some combination of expanded subsidies and tax credits.
And Clinton can look to an advocacy organization for it too — the one she worked for as a new law school graduate.
Almost a year and a half ago, the Children’s Defense Fund proposed a multi-part plan for cutting the child poverty rate by 60%, without increasing the deficit, even briefly.
The Fund did propose making the CTC fully refundable, rather than keeping it capped at 15% of earned income over the threshold for claiming it. But it also proposed two expansions of the CDCTC.
One would increase the percent of care costs the credit offsets — for lower-income families only. The credit would phase down gradually, from 50% for the very lowest-income.
The other change would make the credit fully refundable for families regardless of income. It’s now only a way to reduce tax liabilities, not a potential source of extra income like the CTC and EITC.
A bill introduced only weeks ago by Congressmember Katherine Clark seems to borrow from this recommendation and from one of CAP’s — maybe by way of the DeLauro bill.
It too would provide monthly payments. But they’d serve as childcare subsidies and go directly to centers and home-based providers where eligible parents had their kids enrolled, though again only if quite young.
The credits would be higher for the youngest and also for low-income families. But even the better-off would get something if their adjusted gross incomes didn’t exceed 400% of the federal poverty line — $80,640 for a three-person family this year.
The credits would become refundable, even though the monthly payments would bypass parents. I don’t understand how this would work, not for want of asking Clark’s staff.
Stepping back out of the weeds, we can see that the next Congress and President will have no shortage of ideas for using tax credits to defray a greater share of the costs of child-raising — or at the very least, the costs of having some non-family member care for them part of the time.
Whether policymakers should focus strictly on very young children is an open question, CAP’s rationale notwithstanding. Working parents often need child care for their school-age children, though for fewer hours.
And those children have many other needs, of course — a case for making the CTC a more substantive help for low-income parents, as the Defense Fund proposes. That alone would reduce the child poverty rate by 12%, according to estimates the Urban Institute supplied.
On the other hand, we know that the experiences children have in their earliest years have singularly lasting consequences. The hardships and other stresses of poverty, for example, can impair normal brain development.
Conversely, high-quality early education has well-documented benefits, especially for low-income children, whose parents often have neither the time nor money to provide those enriching experiences that prepare children to do well in school and thereafter.
It all, I suppose, boils down to how much our country is willing to invest in the next generation. We know how we could invest more, with high returns. But we’ve known that for a long time. So it’s not lack of knowledge that’s stymied action, but lack of bipartisan political will.