As jobless claims surge and the economy continues to buckle under the spike in COVID-19 cases, President-elect Joe Biden unveiled a $1.9 trillion stimulus package this week that includes $1 trillion of direct relief for families.
Among the most significant and interesting parts of Biden’s family assistance agenda is a temporary – but dramatic – expansion to the child tax credit. For the 2021 tax year, Biden proposes to increase the per-child tax credit from $2,000 to $3,000 ($3,600 for children under 6) for families earning up to $400,000. The credit would also be made fully “refundable” so millions of households that now earn too little to qualify can benefit. Under current law, families can only claim the credit against their tax liabilities; families whose earnings are too low to pay taxes lose out. However, making the child tax credit fully refundable would benefit as many as 27 million low-income children, according to one analysis.
More significantly, as reported by the Washington Post, families could get their credit in advance payments throughout the year instead of waiting for a lump sum refund after filing their taxes in 2022. A family of three school-age children, for instance, could receive a monthly infusion of cash amounting to $750, while the parents of two toddlers could receive $600.
Aside from being generous, Biden’s proposed monthly benefit is revolutionary. First, the shift to monthly payments would be a breakthrough in how tax benefits are delivered. Lump-sum refunds are hard to budget and provide families with only an annual boost to their income. As the New York Times has reported about the downsides of a lump-sum benefit, many families “fall back into poverty over the course of the year, caught in the same cycle of low-wage work and reliance on credit that put them there in the first place.”
Biden’s proposed monthly child tax credit, however, would eliminate that volatility and have an “income smoothing” effect on a household’s finances, leading to greater financial stability. “Many of the expenses families face are month-to-month, so having a reliable month-to-month source of income will help families stay afloat,” says Ashley Burnside, a policy analyst at the Center for Law and Social Policy (CLASP).
A monthly child benefit could also pave the way for a more permanent “child allowance,” a regular entitlement for all families with children that many advocates favor. Many countries already offer it as a proven strategy against child poverty. Germany’s “Kindergeld,” for instance, is a universal monthly allowance for families with children under 18, regardless of income. Families in the United Kingdom also receive a monthly benefit for children below 16, with amounts based on income.
Universal child benefits, according to an analysis by UNICEF, have reduced child poverty rates by five percentage points on average in the industrialized nations offering such a benefit within the Organisation for Economic Co-operation and Development (OECD). According to UNICEF, 23 countries – primarily in Europe – offer universal child benefits, while another 40 nations offer means-tested child benefits to lower-income households.
In the United States, an expanded child tax credit could have a similarly monumental impact. A new analysis by Columbia University’s Center on Poverty & Social Policy estimates that the child credit, along with the additional stimulus payments, unemployment, and nutrition benefits included in Biden’s plan, could cut child poverty rates by half.
While passage of the Biden plan faces formidable hurdles in a closely divided Congress, there is a bipartisan appetite for this kind of expansion of benefits long favored by Democrats. In July 2020, a coalition of conservative scholars led by Brad Wilcox of the Institute for Family Studies, a conservative think tank based at the University of Virginia, sent a letter to Congress endorsing an expansion of the Child Tax Credit which, the authors argued, “reduces poverty while fostering some of our nation’s most critical investments: those that parents make for their children.” The letter’s 16 signatories included such well-known reform conservative heavyweights as National Affairs editor Yuval Levin, Michael Strain, and Ramesh Ponnuru of the American Enterprise Institute and “Hillbilly Elegy” author J.D. Vance. When I asked Wilcox if his endorsement extends to Biden’s plan, he indicated general support (though he could not commit without specifics).
American children could use the help. The Census Bureau’s latest Household Pulse survey, taken the week after Thanksgiving, found that 14 million households with children – or about 1 In 7 families – reported “sometimes” or “often” not having enough to eat. According to researchers at Harvard’s T.H. Chan School of Public Health, the share of children suffering from “food insecurity,” which the federal government defines as “limited or uncertain access to adequate food,” has doubled since the start of the pandemic, from 14% to 28%. In addition, they calculate, at least 2.5 million children have fallen into poverty since May, a number that’s sure to grow, at least in the short term. Meanwhile, Columbia University researchers estimate that the child poverty rate, which reached a record low of 14% in 2019, climbed back up to more than 20% in September 2020.
Congress will have its say, and the final legislation, if it even makes it to Biden’s desk, could be quite different. The credit could be significantly smaller or means-tested. It may not include the innovative monthly benefit or be made fully refundable. Administrative hiccups could abound: Who gets the benefit if divorced parents share custody? Can the IRS track monthly payments to roughly 33.4 million families with children under 18?
Nevertheless, Biden’s proposal for a monthly child tax benefit is audacious and creative, potentially marking a sharp departure from the cautious incrementalism of the Clinton and Obama Administrations in their approach to poverty and social policy. While some liberals have feared that Biden’s centrism will make for weak gruel, his attention to the nation’s most vulnerable citizens in this inaugural stimulus package should hearten even the fiercest advocates for social change.