Will More Aid to Parents Be Permanent?

To lift families out of poverty during the pandemic, Congress is on the verge of passing a substantial increase this year in the standard child tax credit as part of President Biden’s broader relief package.

But despite the sharp divide over the $1.9 trillion package, some senators – both Democrats and Republicans – want to permanently increase federal assistance to families. Their goals range from reducing racial inequality and rural poverty to providing more financial stability for middle- and working-class parents.

The prospect of a bipartisan plan for increasing assistance to parents beyond this year is welcomed by advocates for the poor and lower-income workers. The proposals represent a belief “that all of society benefits when children are doing well,” said Myra Jones-Taylor, chief policy officer for Zero to Three, which promotes policies to help infants and toddlers.

Prior to COVID-19, she said 40 percent of infants and toddlers were in families below 200 percent of the poverty limit. Parents “didn’t have the financial resources to meet their [children’s] basic needs,” she said.

The current proposal in Congress for immediate pandemic relief would increase the per-child tax credit in 2021 from the current level of $2,000 to $3,600 for children under age 6 and $3,000 for older children and teenagers. This same increase is included in a bill by Democratic Sens. Michael Bennet of Colorado and Sherrod Brown of Ohio to make the larger tax credits permanent.

Republican Sen. Mitt Romney’s plan is even more generous. The Utah senator proposed $4,200 in annual cash payments for children under 6 and $3,000 for older children, and some Republicans may be willing to go along. Romney’s plan, if passed, “would arguably be the biggest anti-poverty measure since the Social Security Act of 1935,” Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, a Washington think tank, said in an interview.

But Hammond said members of both parties are making serious efforts to alleviate poverty by targeting assistance to children. The United States has the highest poverty rate of any developed country, “because we spend so little on child benefits, and the benefits we do have cut out the poorest families,” he said. The current tax credit is not available at all to the unemployed and low-income families earning under $2,500.

Hammond and Jones-Taylor were among the panelists in a webinar last month at the Urban Institute to explore the pros and cons of each approach – a tax credit versus monthly cash assistance.

Under Romney’s plan, all parents would receive monthly payments, though high-income parents would repay the money at tax time. The Democrats’ proposal phases out and eventually eliminates the credits for higher-income families.

Both plans address two problems with the tax credit under existing law. Very low-income parents, who don’t usually pay taxes, currently cannot get the full $2,000 credit in the form of a refund – their refunds are capped at $1,400.

This restriction – combined with the $2,500 minimum income requirement – deprives some 27 million kids of low-income and unemployed adults of the full $2,000 credit, said panelist Elaine Maag of the Urban-Brookings Tax Policy Center.

Democrats would eliminate the income requirement and refund the entire $3,600 and $3,000 credits. They would limit the cost by starting to phase out the credit at lower incomes – $75,000 for single parents and $150,000 for married couples – than exist under current law.

Romney would partly fund his plan by eliminating the federal tax deductions for state and local taxes, which go primarily to higher-income families.

Another important difference is the federal agencies that would distribute the assistance. Romney’s cash payments would come from general revenues but be distributed by Social Security, which already provides monthly checks to retirees and people with disabilities. However, it would take time to set up a new system for parents.

Biden’s tax credits would go through the IRS – as they do now. The IRS can get the 2021 assistance out quickly during the pandemic, because it has the information it needs about family incomes and dependents. But if the larger credits become permanent, Maag said the IRS is “a blunt instrument.” The agency would not be able to adjust if, for example, a child moves from living with one parent to another sometime during the year. The Democrats are also open to Social Security making the payments, in place of tax credits, in the future, Hammond said.

One concern about Romney’s plan is that he would eliminate Temporary Assistance for Needy Families (TANF). While the typical family receives only $400 per year from TANF – though much more in California and New York – eliminating the program may deprive people of their SNAP food subsidies, which many states automatically provide to parents who qualify for TANF. Break the TANF-SNAP link, critics argue, and some people may lose food stamp eligibility.

But Romney’s plan represents a philosophical shift, because the payments are available to everyone and are paid monthly to align with households’ budgets – neither of which is true for the current tax credits.

“We used to feel comfortable giving people a tax break,” Urban Institute president Sarah Rosen Wartell said during the webinar. Sen. Romney “is saying that having a child is something society values, and we’re making cash payments to ensure you can support that child.”

Read our blog posts in our ongoing coverage of COVID-19.

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