Can You Build a Better Child Tax Credit?

A new tool lets you adjust the length and income limits, just like politicians

Sen. Joe Manchin (D-WV) speaks to reporters as he leaves the Senate Chambers following a vote on December 15, 2021 in Washington, DC. The Senate voted to pass the National Defense Authorization Act, which sends the bill to the desk of U.S. President Joe Biden.

Anna Moneymaker / Getty Images

How much support should parents with children at home get from the government? Who deserves to receive it? And what’s a reasonable amount for that support to cost?

Those are the policy questions roiling Washington right now as last year’s massive expansion of the federal child tax credit lapses and politicians debate whether and how to renew the landmark initiative. Thus far, its fate—and form—have largely been in the hands of one man, Democratic Sen. Joe Manchin of West Virginia. He says his party’s latest draft of the $1.7 trillion Build Back Better benefits bill will increase inflation and the deficit too much to get his vote, and suggested the tax credit—a central component of the bill—should come with work requirements and lower income limits.

Key Takeaways

  • Last year’s expansion of the federal government’s child tax credit won’t continue this year unless Joe Manchin, a holdout Democrat in the Senate, is convinced to support the president’s Build Back Better spending bill.
  • Sen. Joe Manchin has said the Build Back Better bill and its extension of the 2021 child tax credit—a central component—would fuel inflation and increase the deficit too much. 
  • A new tool available online lets you create your own version of the child tax credit, opening a window into the cost considerations politicians are wrangling over.
  • Changing the amount of the credit or who gets it shows how much various components would alter its cost.

But is there a way to reach common ground and salvage some version of the tax credit expansion, which also included an unprecedented distribution through advanced monthly payments? To better understand the various cost levers of the credit, the Committee for a Responsible Federal Budget, a think tank that advocates for reducing spending deficits, recently created a “Build Your Own Child Tax Credit” model.

An Excel spreadsheet, the model lets people change many of the features of the credit to see how they would affect the government’s cost. So not only can you change the value of the credit, but you can decide how much income is too much for parents to get any or all of it, choose whether the full amount should still go to those who don’t earn enough to qualify for a full tax offset, and determine how long it should last (through 2025 or longer), among other things.

“It basically lets you design your own child tax credit,” said Marc Goldwein, senior policy director at the think tank. Besides the value of the credit, “there’s all sorts of smaller choices that you have to make that can dramatically change the cost.” 

The expansion, part of the American Rescue Plan Act of early 2021, was intended to give parents with dependent children extra money to cope with the pandemic’s economic upheavals. 

The maximum credit was increased to $3,600 from $2,000 per child, families who made too little money to qualify for all (or even part of it) in the past were suddenly eligible, and the IRS started distributing some of it in advance as monthly payments of up to $300 per month per child. But those changes expired at the end of the year, and Congress would have to vote to extend them.

Will It Be Salvaged?

While President Joe Biden said late last month he was still optimistic about passing Build Back Better, it’s unclear whether the bill, including some form of the revised tax credit, will be salvaged. The House has already passed it, but proponents can’t afford to lose Manchin’s vote—or any of the Democrats’ —if they want to get it through the evenly divided Senate. 

The 10-year price tag of Build Back Better was already trimmed down to $1.7 trillion from $3.5 trillion to address Manchin’s concerns about fueling inflation and overspending, though one of Manchin’s objections has been how his fellow Democrats got to the $1.7 trillion. 

Instead of changing much of the structure of the benefits, it was largely just the timeframe that they changed, he said, which camouflaged the real aspirations of Democrats (and the potential cost of the programs if they ended up lasting longer). For example, since a permanent extension of the 2021 version of the tax credit alone was estimated to cost $1.6 trillion over 10 years, Democrats’ latest Build Back Better offer involved extending most of the changes for only one year at a cost of $110 billion.

So what if other changes were made to the tax credit? Besides how long it would last (and one year is not an option in the center’s model), other parameters impact the cost, and we encourage you to mess around with it yourself. In the meantime, we plugged in changes addressing some of Manchin’s concerns to illustrate how much they would alter the cost within the context of the permanent expansion some Democratic leaders have called for.

Income Limits

One bone of contention for Manchin is that this year the credit went to people with relatively high incomes. In the current version of the credit, individuals making up to $75,000, and married couples making up to $150,000, would earn its full, increased value, with the amount decreasing on a sliding scale along with additional income. (Individuals making up to $200,000 and married couples making up to $400,000 can claim up to $2,000 of the credit, which was true before 2021.) 

Keeping everything else in the 2021 version but making the credit start to phase out at, say, $30,000 of income for individuals and $60,000 for married couples (even more restrictive than what Manchin has suggested) would trim the cost of a permanent overhaul to about $1.36 trillion from $1.59 trillion over 10 years.

Manchin has also objected to the lack of a work requirement, which isn’t accounted for in the center’s model. But what is changeable is the “fully refundable” aspect of the 2021 version, which let people claim the full value even if they don’t earn enough income to completely deduct it from their taxes, or even if they make no money at all. Axing that element but leaving everything else from the 2021 version intact would bring the 10-year cost of a permanent expansion down to $1.44 trillion. 

The eligibility of lower-income families was key to making the 2021 credit more effective in fighting child poverty, according to a study by the Jain Family Institute, a research organization that estimates removing it this year would leave an additional 3.2 million children in poverty.

One of the things the model shows is that the refundability provision turns out to be one of the cheaper aspects of the tax credit, Goldwein said.

“The expensive part of this is increasing the credit for everybody,” he said. “The cheaper part is making sure that low-income folks have some credit or a larger credit than they have today.”

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  1. Twitter. “@wvmetronews, 10:24 AM · Dec 20, 2021. Manchin Explains Death Knell to Build Back Better in Talkline Interview.”

  2. Fox News. “Sen. Joe Manchin: 'I Cannot Vote' for Build Back Better Amid 'Real' Inflation.” (Video.)

  3. Committee for a Responsible Federal Budget. “Build Your Own Child Tax Credit.”

  4. Committee for a Responsible Federal Budget. “ The Child Tax Credit: Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021 (ARPA; PL 117-2).”

  5. Fox News. “Sen. Joe Manchin: 'I Cannot Vote' for Build Back Better Amid 'Real' Inflation.” (Video.)

  6. Congressional Research Service. “The Child Tax Credit: The Impact of the American Rescue Plan Act (ARPA; PL 117-2) Expansion on Income and Poverty.”

  7. Jain Family Institute. “Reducing Refundability of the Child Tax Credit: Assessing Poverty Impacts and Trade-Offs.”

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