Can Congress Reach a Last-Minute Agreement to Resurrect the Child Tax Credit?

“The gallows doth wonderfully concentrate the mind,” as Samuel Johnson once noted, and the remaining ticks of the clock for this session of Congress have inspired a last-ditch attempt to revive the expanded Child Tax Credit (CTC). 

In 2021, of course, the American Rescue Plan introduced six months of no-strings-attached cash to parents. For the rest of the year, left-leaning groups’ apparent strategy for turning that pandemic-era relief into a transformation of the nation’s safety net was to browbeat Sen. Joe Manchin (D-W.V.) into submission.

Sen. Manchin, to his credit, held firm, concerned about the unintended consequences of a child benefit without any connection to participation in the labor force. And, perhaps somewhat surprisingly, the Biden administration’s proposed CTC expansion never caught fire politically. 

Chastened by their failure, reporting by Vox’s Rachel Cohen suggests that left-leaning groups are now increasingly open to doing what they should have all along—work across the aisle to find ways of reforming and improving the CTC.

I try not to waste too much of my time reading tea leaves from Capitol Hill, but personally would not give them high odds of succeeding. As Cohen’s article points out, some lawmakers on the left are hoping to leverage expiring corporate research and development tax credits for CTC expansion. But given that both parties have an interest in seeing the R&D credits extended, it’s unclear what kind of leverage they have to wield. Republicans would need meaningful concessions to support CTC expansion, and the time remaining before the final gavel is likely too scanty to allow for such negotiations. 

But abandoning the my-way-or-the-highway approach opens the door to more fruitful negotiations, suggesting three plausible areas of compromise for lawmakers either in the lame-duck session or in the next Congress. 

The most straightforward case for the CTC is fairly simple—parents bear the cost of childbearing individually, but the benefits flow to the rest of society in the form of future workers, employers, and innovators. In an era of declining marriage and fertility rates, helping shoulder some of the costs of family can help parents feel a little more stable and make it easier to make ends meet at the end of the month. 

The current (non-expanded) version of the CTC allows parents to take $2,000 off their federal income taxes per child. During the American Rescue Plan negotiations, every Republican in the Senate voted in favor of an amendment sponsored by Sens. Marco Rubio (R-FL) and Mike Lee (R-UT) that would have increased that amount to $3,300, with an additional $900 for young children. 

The question that has bedeviled lawmakers is what to do for families who could claim more in their per-child credit than they owe in taxes. According to a paper by Stanford Law’s Jacob Golden and Michigan’s Katherine Michelmore, approximately one-third of children live in households that claim zero or partial CTC, including half of black and Hispanic children. This is often due to some combination of having a low income, a higher number of kids, or a parent stay home—half of all families who only claim a portion of the CTC are married.

Currently, low-income and working-class parents can claim up to $1,400 via the “refundable” Child Tax Credit (that amount will go up to $1,500 next year thanks to high inflation.) At the same time, as Bloomberg’s Ramesh Ponnuru pointed out, even families that receive the full amount have seen the value of the CTC fall in real terms—$2,000 in 2017, when the CTC was doubled in the Tax Cuts and Jobs Act, is worth about 20% less now, thanks to record-high inflation. And the amount is scheduled to reset back to $1,000 per child in 2025 if Congress doesn’t act. 

The recognition that Congress could act on the CTC spurred the usual suspects into action—the Wall Street Journal editorial page, last seen mocking CTC advocates for discriminating against “dog moms,” ran a staff editorial and a column by the former head of the Tax Foundation, warning Republicans not to expand the CTC. The opponents call the CTC a “failed experiment,” which, when looked at strictly through an anti-poverty vein, may contain a grain of truth. A paper by University of Chicago’s Bruce Meyer, Notre Dame’s James Sullivan, and Jeehoon Han of Zhejiang University found that the purported impact of the expanded CTC on child poverty may have been overblown.  

It shouldn’t need to be said, but for the record, no one is in favor of child poverty. The disagreements center on the most effective and sustainable way to reduce poverty. While that debate will continue to rage, it is largely orthogonal to the right way to think about the CTC. If one sees the credit not so much as an anti-poverty program, but as one oriented towards strengthening family life, then a true assessment should chalk it up to anything but failure. 

Getting money directly into the hands of parents to allow them to better achieve their desired work-life balance, afford child care or private school tuition, or afford the necessities of raising a child is a far better way for government to strengthen families than, say, the alphabet soup of programs Build Back Better advocates were fighting for. And it’s much more responsive to the working- and middle-class, who don’t owe much in federal income taxes, than the usual supply side-ism that myopically focuses on tax cuts. 

In its negotiations to improve the CTC, we might expect Congress to discuss making the credit refundable from the first dollar (currently, families must make over $2,500 to be eligible) or making it phase in at a faster rate than the current 15 cents on the dollar. The People Policy Project’s Matt Bruenig, an advocate of a universal child tax credit, would also like to see Congress replace the CTC’s phase-out for upper-income families with a tax for some technical (though in substance, correct) reasons. And there seems to be broad agreement that the idea of a higher CTC amount during early childhood, when parents are more likely to have to pay for day care, makes a good deal of sense. 

Of course, I lean toward something along the lines of Sen. Mitt Romney’s (R-UT) Family Security Act 2.0, which not only improves the CTC but does so in a fiscally-sensible manner by consolidating and reforming other provisions in the tax code. Using that plan as a starting point for negotiations would require both sides to sacrifice some of their own interests, but dealmaking requires a little bit of give and take. If, as expected, the clock runs out on the lame duck CTC deal, the Romney plan, or something like it, could provide a substantial chance of pro-family policymaking now that our friends on the left have shown they are willing to negotiate after all. 

Patrick T. Brown (@PTBwrites) is a fellow at the Ethics and Public Policy Center. He writes from Columbia, South Carolina.   

*Cover photo credit: Joshua Sukoff via Unsplash

Editor's Note: The opinions expressed in this article are those of the author and do not necessarily reflect the official policy or views of the Institute for Family Studies.