At the end of 2021, not quite a year into Joe Biden's presidency, something unusual happened: Congress actually allowed a massive government program to expire. That program was the expanded child tax credit, which had been enacted as a temporary program under the American Rescue Plan (ARP), a roughly $2 trillion spending package passed exclusively with Democratic votes in March 2021.
A year after the expansion expired, however, Democrats began looking for ways to bring it back. The cost of doing that would be very high.
The ARP raised the maximum child tax credit from $2,000 to $3,600 per child for families making up to $150,000 a year. The one-year program made the credit fully refundable, meaning that people would qualify for it even if they owed no income taxes. That change expanded the benefit to millions of households that previously had earned too little to qualify.
The ARP also turned what had been an annual lump sum around tax season into a monthly payment that in many cases was directly deposited into parents' bank accounts. In effect, the law set up a program of monthly checks, sent directly to the bank accounts of most families.
Although the program was initially designed as a one-year expansion, supporters hoped it would become permanent. As The New York Times reported in January 2022, the benefit "was never intended to be temporary," and "many progressives hoped that the payments, once started, would prove too popular to stop."
Yet at the end of the program's first year, after paying out about $80 billion, Congress declined to extend the program. Even with Democrats in control of both the House and the Senate, there simply weren't enough votes to keep it going. Sen. Joe Manchin, the moderate Democratic senator from West Virginia, was vocally opposed, citing cost concerns and warning that the expanded eligibility would subsidize unemployment. Progressive ambitions were foiled—or at least they seemed to be.
In late 2022, after Democrats performed far better than expected in the midterm elections, picking up a seat in the Senate as Republicans gained only a narrow majority in the House, some Democrats pushed to restart the program. Sen. Michael Bennet (D–Colo.) argued that a renewed expansion of the child tax credit should be tied to the extension of some corporate tax breaks in an end-of-year budget deal.
In October 2022, Congress' Joint Committee on Taxation reported that a permanent expansion would cost more than $1.4 trillion over a decade. And because it would provide benefits to people with no tax liability, the committee said, it would create a new incentive to eschew work. The negative effects on the labor market would, in turn, reduce long-run economic growth.
The labor market effects also would undermine one of the key arguments in favor of the child tax credit—that it reduces child poverty. A 2021 study from a group of University of Chicago economists found that the program would reduce child poverty, but by far less than expected, since many workers would respond by exiting the labor force. Because the labor market effects would be concentrated among the poorest households, the authors reported, "deep child poverty would not fall at all."
And then there was inflation. Despite Democrats' better-than-expected performance in the midterms, voters gave them poor marks on the economy, especially regarding price increases. The year prior to the election saw some of the biggest price jumps in 40 years. Inflation was partly due to pandemic-related supply-chain disruptions, but it was exacerbated by the checks that the government sent to millions of Americans.
Voters, meanwhile, were less than enthusiastic about Biden's tax credit experiment. According to a Morning Consult poll conducted at the end of 2021, just 47 percent favored an extension of the program, while 42 percent opposed it and the rest offered no opinion.
Congress laid to rest the expanded child tax credit. More than a year later, there is no sense in bringing it back from the grave.
The post Bringing the Child Tax Credit Back to Life Is Too Costly appeared first on Reason.com.
