Last month, supporters of Democrats’ Build Back Better plan argued a key reason for passing that trillion-dollar legislation was to prevent the expiration of enlarged child tax credit payments to over 30 million households. Some left the impression that, without further legislation, the entire child tax credit would end, while others suggested only recently enhanced payments would expire. But neither characterization is correct. Even without further legislation, tens of millions of families are about to get the largest payments yet under the temporary policies created in the March 2021 American Rescue Plan.
The American Rescue Plan made
three temporary changes to the longstanding child tax credit program,
applicable for calendar year 2021 (which includes the annual federal income tax
filing season that ends in April 2022). First, it increased maximum annual benefit
amounts from up to $2,000 per child to a flat $3,000 for each child aged six to
17 and to $3,600 for each child under age six. Second, it expanded eligibility
by providing full payments for the first time to parents who don’t work or don’t
owe federal income taxes. And third, it provided these increased payments on a
monthly basis for the first time, with half of the expanded benefit paid out in
six monthly installments between July and December 2021.
Only the third policy has ended — the payment of expanded benefits in monthly installments. But that still leaves a coming surge in benefits for a simple reason: Half of the temporary benefit expansions provided for 2021 will be paid out when families file their federal income tax forms in the coming weeks. As the nonpartisan Congressional Research Service described in a recent report, “Taxpayers claim the remaining half of the total 2021 credit when filing their 2021 income tax return beginning in early 2022.” As a result, families who received $300 checks per young child in each of the last six months of 2021 are about to receive $1,800 for the same child when they file their federal income taxes. In effect, these families will receive the equivalent of six months of enlarged payments at once, even without further legislation.
But you would never know that by reading recent headlines, which often implied the entire child tax credit program was about to shut down. For example, before key Senator Joe Manchin (D-WV) gave his thumbs down to the House-passed Build Back Better bill in December, a headline from The Hill suggested that the coming “Child tax credit expiration adds pressure for Democrats.” Similarly, a CNBC headline stated “Child Tax Credit to end unless Build Back Better is passed.” Key political leaders followed the same script, with House Democratic Caucus Chairman Hakeem Jeffries (D-NY) saying Democrats “will not allow this tax credit to expire.” If they stopped there, readers would have wrongly thought the entire child tax credit — first created in 1997 and doubled to up to $2,000 per child in the 2017 tax reform law — was about to end.
The more nuanced version of events — which suggests that enhanced payments ended in December — misses the mark, too. For example, a January 2 New York Times headline pointed to the expiration of “extra” help, stating “Child Tax Credit’s Extra Help Ends, Just as Covid Surges Anew.” A January 3 Wall Street Journal headline comes closer to the mark, stating “Monthly Child Tax Credit Payments Cease, Ending Cushion for Family Budgets.” But even that characterization ignores the significant “cushion” about to be paid out when families file their tax forms.
How large is that
coming surge in federal support? Simply put, without even counting the massive advance
payments already made in the last six months, program payouts in early 2022 will
reach record levels.
The nonpartisan Congressional Budget Office expected the American Rescue Plan to provide an additional $109 billion in program benefits this year, on top of the roughly $115 billion projected to be paid out before the current expansion. Meanwhile, the Treasury Department recently reported that through December almost $93 billion has been provided in six rounds of advance monthly payments. That leaves roughly $130 billion yet to be paid out in the coming tax season — or more benefits than in any prior program year. (The previous annual peak was $118 billion in 2020, and as recently as 2017 the program provided $54 billion in annual benefits.)
That means that, far from ending, child tax credit payments are about to surge to record levels — without enactment of the Build Back Better plan.
The post The child tax credit is not ending, part I appeared first on American Enterprise Institute – AEI.