Matt Williamson /The Enterprise-Journal via AP
The first day of school in Summit, Mississippi
Joe Biden’s Child Tax Credit, which is really a universal basic income for families with kids, is a monumental achievement that doesn’t get enough respect. It was enacted for one year, as part of the March relief package known as the American Rescue Plan. Now, as Congress begins the 2022 budget reconciliation process with the possibility of making the credit permanent, it’s a good time to review what’s been achieved and why this benefit must not be taken away.
This Friday, just in time for back-to-school spending, parents will get the second monthly installment of $250 per child, and $300 for children under 6. The child tax credit, which is not income-tested except for the very affluent, reaches upwards of 90 percent of parents with kids at home.
It will cut the child poverty rate in half. The vast majority of parents do not even have to apply. If you have a relationship with the IRS and a bank account, the money will automatically show up in your account. Otherwise, you can apply for the government to send you a check or debit card. It’s like Social Security, for people with kids.
There was a recent media kerfuffle when some polls seemed to show a lack of public support for making the credit permanent. But those polls were highly misleading.
Not all citizens have kids. So support is less than unanimous, but it is still impressive. Support is even more overwhelming when the tax credit is framed as a tax cut. (It is a tax cut for parents who make enough to pay taxes. For people too poor to pay taxes, it is a basic income supplement.)
The child tax credit, by reducing child poverty, produces substantial savings in Medicaid, food stamps, and foster care.
Recent polling by the Global Strategy Group shows that Americans support the child tax credit by a margin of 56 to 30, and that support rises to 63-28 when an explanation is added. Parents support it by the overwhelming margin of 77-18.
Other new polling for the Democracy Corps supported by the American Federation of Teachers and the Center for Voter Information found that that Child Tax Credit was a significant winner with key swing demographic groups. Younger white working class voters support it by margins of two to one. White working class men, a group that broke heavily for Trump, support the credit, 57 to 40.
The libertarian Niskanen Center supports this program, as a tax cut targeted at people with kids. Their study found a disproportionate benefit to rural states of the sort that often back Republicans.
The credit can help Democrats in such states, where voters may be wary of big government programs. But this is not a big program. It’s a check. Sen. Maggie Hassan, facing a close re-election campaign next year in tax-wary New Hampshire, has gone out of her way to embrace the credit and the parents whom it helps.
The benefits are not limited to reducing child poverty. The credit is already benefiting the wider economy. A MasterCard survey reported a huge jump in July retail sales, crediting the Child Tax Credit as a major factor. This will only increase with back-to-school spending.
Republicans are anxious about this program, and with good reason—it peels off elements of their core support. And polls show that the usual GOP taking points don’t work. Republicans try to characterize it as rewarding people for not working, except the vast majority of recipients are working parents. If they are not careful, the Republican attacks will alienate their own base.
The current program was legislated only for one year. Now begins the big battle to make the credit permanent. President Biden supports a long-term extension. So do all the key Democratic players in Congress.
House Appropriations chair Rosa DeLauro, long the champion of this policy, wants to make it permanent. So does the House budget chair, John Yarmuth. Likewise Bernie Sanders, the Senate budget chair; and the Senate appropriations chair, Pat Leahy; and the two leaders in the House and Senate, Nancy Pelosi and Chuck Schumer.
Since the Budget resolution cannot be filibustered and will be passed by Democrats only, what’s the hold-up? Only a little monster of a budget rule known as PAYGO, short for pay as you go.
Ever since the Clinton administration’s obsession with budget balance, renewed in President Obama’s disastrous budget deal in 2010, Democrats have accepted PAYGO—the idea that all new spending must be offset either by cuts in other spending or by new taxes.
Republicans have blown off this idea whenever they wanted to cut taxes. Trump’s massive tax cut of 2017 was simply treated as off-budget. But Republicans have found PAYGO very useful as leverage to restrain public investment programs sponsored by Democrats.
The child tax credit, treated conventionally, is expensive. An extension through 2025 would cost over $450 billion, and a permanent extension would cost $1.6 trillion over the ten-year budget window addressed in budget resolutions. If PAYGO rules are applied, Democrats would have to find that much money in new taxes.
But there is a good case that PAYGO rules should not be applied. The supposedly technical and neutral enforcer of PAYGO discipline is the Congressional Budget Office. The CBO refuses to take into account as offsets program benefits that save tax dollars elsewhere in the government.
The child tax credit, by reducing child poverty, produces substantial savings in Medicaid, food stamps, and foster care. Looked at more broadly, the credit produces gains to children who grow up to become productive citizens and thus gains to the economy. Studies show that the child tax credit returns $8 to the economy for every dollar spent.
If CBO were doing its job, they would count these indirect benefits as offsets. CBO was created by Congress, it reports to Congress, and Congress can change its rules. Key legislators, such Reps. DeLauro and Yarmuth, are sympathetic to this view. “Under our rules, we could not have passed the G.I. Bill,” Yarmuth told me. “Congress should just do away with PAYGO.”
A formal rules change may or may not be possible in time for this year’s budget resolution, which will be finalized in September or October. When Sen. Schumer released the initial budget summary documents yesterday, they mentioned the goal of a long-term extension of the child tax credit, but did not provide details.
One hopeful harbinger is that in the $1 trillion bipartisan infrastructure bill now in final stages of passage, key Democrats and Republicans agreed on a handshake basis just to ignore the usual PAYGO rules, to the tune of some $340 billion in public investment, on the premise that investment is good for growth, and that the revenue would materialize.
If that’s true of investment in infrastructure, it’s doubly true of investment in our kids. Either change the rules, waive them, or ignore then, but the child tax credit needs to be permanent.
