Significant bipartisan child tax credit plan: impact on families
The Bipartisan Child Tax Credit Expansion: A Boost for Families
The proposed bipartisan child tax credit expansion, announced on Tuesday, has the potential to positively impact millions of families across the United States, particularly those with lower incomes. This legislative plan, resulting from discussions between Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR), builds upon the current tax credit, which was initially increased by the 2017 Tax Cuts and Jobs Act, also known as the Trump tax cuts.
The key focus of the plan is to make the child tax credit more generous by changing the calculation of the credit on a per-child basis. It also aims to increase the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in 2024, and $2,000 in 2025.
Benefits for Lower-Income Families
One of the most significant changes in the proposal is the increase in the maximum amount of the credit that is refundable. This means that households with no tax liability will be eligible to receive a check from the government. The current $1,600 cap on the refundable amount will be raised, benefiting lower-income families who pay little to nothing in income taxes.
Garrett Watson, a senior policy analyst at the Tax Foundation, explains that this expansion will particularly benefit working families with lower incomes who do not meet the full $2,000 threshold. These families, who may currently receive around $1,500, will see a more generous child tax credit.
A Step Towards Change
Joshua McCabe, the director of social policy at the Niskanen Center, emphasizes the significance of this bipartisan proposal. It marks the first progress in making changes to the credit since the expiration of a temporary expansion by Democrats in 2021. The previous expansion raised the credit to $3,600 for children under 6 and $3,000 for older children, with the removal of an income threshold for recipients. However, it expired at the end of 2021, leading to opposition from Republicans who criticized the lack of work requirements.
Oren Cass, the executive director of American Compass, acknowledges that while the new expansion may not be as dramatic as the 2021 expansion or what his group would ideally like to see, it does include several meaningful adjustments. Importantly, it strikes a balance between providing greater financial assistance to low-income families and maintaining a connection to work, rather than simply being an automatic check.
Lifting Families Out of Poverty
If the legislation passes, families earning very little will experience the most significant benefits. For example, families earning between $10,000 and $30,000 will receive a much larger credit if they have more than one child. The change in the phase-in calculation means that a family with three children working full-time at the federal minimum wage could see their credit triple from $1,800 to $5,400.
Early projections indicate that the new expansion will have a substantial positive impact on poor families. In the first year alone, it could lift up to 400,000 children out of poverty and make around 3 million children less poor as their families’ incomes approach the poverty line, according to the Center on Budget and Policy Priorities.
Protecting Families from Inflation
The proposal also includes indexing the credit for inflation, which has been a significant burden on U.S. households for the past two years. Joshua McCabe expresses his pleasant surprise at the inclusion of indexing, calling it a major turning point that will shield lower- and middle-income families from the effects of rising prices.
While the new expansion offers a bigger child tax credit, it does come with the revival of certain business tax provisions. These include the tax deduction for research and development costs and the temporary halt of the phase-out of bonus depreciation.
Although the proposal falls short of ideal for proponents of increased government support for families, it is seen as a step in the right direction. Oren Cass believes that the country ultimately needs a more comprehensive family benefit that is not temporarily attached to the tax code. Ideally, such payments would be tied to income, distributed monthly, and resemble a system similar to Social Security.
How does the proposed child tax credit expansion promote work and self-sufficiency for families?
Me families while also incorporating measures to promote work and self-sufficiency.
Promoting Work and Self-Sufficiency
In order to address concerns about work requirements, the proposed expansion includes provisions aimed at encouraging work and self-sufficiency. The plan ensures that the credit is fully refundable for families with earned income, meaning that families who are working will benefit from the expansion. Additionally, it includes language to prevent families from claiming the credit for non-existent children or dependents, further promoting accountability and reducing fraud.
According to Senator Wyden, the expansion strikes a balance by offering increased support for families who need it the most, while also upholding the principle of work. By incorporating these provisions, the bipartisan proposal acknowledges the importance of incentivizing work and empowering families to become self-sufficient.
Impact on Families and the Economy
The proposed expansion has the potential to provide significant financial relief to families, particularly those on the lower end of the income spectrum. The additional support through an increase in the maximum refundable amount per child will help alleviate some of the financial burdens faced by families struggling to make ends meet.
Furthermore, the increased child tax credit can have lasting economic impacts. Research has shown that providing financial support to families with children can lead to improved child well-being, increased educational attainment, and reduced poverty rates. By putting more money into the hands of families, this expansion has the potential to boost consumer spending, stimulate economic growth, and create a more equitable society.
The Path Ahead
While the bipartisan child tax credit expansion shows promise and has gained support from lawmakers on both sides of the aisle, it still faces challenges before it can become law. The proposal will need to navigate the legislative process, including committee hearings and floor votes, and garner support from a majority of legislators in both the House and the Senate.
Nevertheless, this bipartisan effort represents an important step towards providing much-needed support to families and addressing the economic inequality faced by many Americans. It demonstrates that lawmakers from different parties can come together to create meaningful legislation that directly benefits those who need it the most.
If passed, the expanded child tax credit has the potential to make a significant difference in the lives of millions of families across the United States. It would provide crucial financial assistance, promote work and self-sufficiency, and have a positive impact on the overall economy. Time will tell whether this bipartisan proposal will become law, but for now, it offers hope and possibility for families in need.
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