Jan 5, 2022

The child tax credit ends.

The child tax credit ends.

Can Democrats revive the program?

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 11 minutes.

We're covering the debate over the child tax credit. We're also skipping today's reader question to give this topic some extra space.

Joe Biden speaking with attendees at the 2020 Iowa State Education Association (ISEA) Legislative Conference at the Sheraton West Des Moines Hotel in West Des Moines, Iowa. Photo: Gage Skidmore
Joe Biden speaking with attendees at the 2020 Iowa State Education Association (ISEA) Legislative Conference at the Sheraton West Des Moines Hotel in West Des Moines, Iowa. Photo: Gage Skidmore

Correction

Yesterday, I wrote that Rep. Bobby Bush (D-IL) was retiring from Congress. In fact, the representative’s name is Bobby Rush. You'll forgive my brain for not immediately noticing "Bush" as an incorrect name in my political reporting.

This is the 49th Tangle correction in its 127-week history, and the first correction since December 6th. I track corrections and place them at the top of the newsletter in an effort to maximize transparency with readers.


Reader feedback.

Joe in Buenos Aires wrote in about yesterday's edition to say, "I am very sorry to have to inform you that you missed a GIGANTIC – and I mean GIGANTIC – point on congressional action on defense budgets. A lot of those representatives & senators, when they vote for all those no-longer-needed weapons systems, are actually voting for the continuation of jobs in their districts that those weapons programs bring. Indeed, a lot of the major contractors deliberately spread out their manufacturing sites for said weapons systems into as many states & districts as they can in order to provide more incentive for representatives & senators to vote for that system, need or redundancy be damned. And the President—I do not give a damn from which party (s)he is—is not about to alienate representatives & senators by telling them "No, you can no longer have those jobs."


Quick hits.

  1. Chicago Public Schools, the third largest school district in the U.S., canceled all classes today after rejecting a vote by the Chicago Teachers Union to return to remote learning. (The closures)
  2. A record 4.5 million workers quit their jobs in November, a 9% increase from October. (The numbers)
  3. California investigators told prosecutors they believe a PG&E power line hit by a truck was responsible for last year’s nearly million-acre Dixie fire. (The evidence)
  4. North Korea test-fired a ballistic missile today, its first weapons test in two months. (The test)
  5. Rep. Brenda Lawrence (D-MI) became the 25th House Democrat to announce that she would retire in November. Lawrence's district is heavily Democratic. (The resignation)

Today's topic.

The Child Tax Credit (CTC). At the end of the year, the legislation that provided monthly checks that were going out to millions of parents — which Democrats passed last year — lapsed. Party leaders had expected to pass a temporary or permanent expansion of the CTC in the Build Back Better legislation, but that bill was effectively killed last month when Sen. Joe Manchin (D-WV), who Democrats needed to pass the legislation, announced he was not going to vote for the nearly $2 trillion bill.

A reminder: Before 2021, the CTC existed in a different form. Families used to be able to get up to $2,000 per child on their tax returns, and many low-income families did not receive the full benefit. In 2021, Democrats passed legislation to boost the annual value to $3,000 per child for most households and created a $600 additional credit for children under the age of 6. Instead of distributing the money on end of year tax returns, they added monthly payments and made the lowest-income families eligible.

In July, more than 30 million homes housing approximately 61 million children began receiving as much as $300 per child (under six) or $250 per child (between 6 and 17) every month. The full tax credit goes to families with incomes up to $75,000 for individuals, $112,500 for single parents, and $150,000 for married couples. For every $1,000 above those income thresholds, the credit is reduced by $50, until it completely phases out for individuals earning $95,000 and those married couples making $170,000 a year and filing jointly.

Research has shown the CTC sharply cut child poverty in its first few months. Families spent the cash primarily on the essentials the drafters behind the legislation had hoped they would. Food was the number one expense, followed by essential bills, clothing, rent/mortgage, school expenses, and paying down debt. About 16.5% said they put the money in savings or investments. However, some economists have argued the legislation will discourage low-income people from seeking out work.

When Democrats passed the CTC overhaul, they expected it would be so popular that Congress would not let it lapse. But now that it has lapsed, there is currently no clear path forward for reinstating it. If Democrats can revive the bill, it's possible they would issue a double payment in February to make up for the lost month.

Critics of the bill, including Sen. Manchin and many Republicans, have said it is too generous for higher-income households and that they will not support it without a work requirement. Democrats and President Biden have said such a requirement would leave out the neediest families. Manchin has also called for an income cap of around $60,000 per household to receive the benefit.

Below, we'll take a look at some arguments from the right and left on the child tax credit lapsing. Then my take.


What the left is saying.

  • The program is a long-term investment in our children, and would sharply cut child poverty.
  • $300 per child a month is not enough money to keep people from working.
  • In the five months the CTC was in place, parents spent the money on exactly the kinds of things Democrats hoped they would — food and essentials.

In The Washington Post, Claudia Sahm said Manchin's concerns are valid, but her "strong view" is that it would not cause parents to work less and more specific targeting would be a mistake.

"The credit is already a huge success," Sahm said. "It is, by itself, expected to lower the national poverty rate by nearly a percentage point. In regions where poverty is most common, the decline would be even more pronounced; in West Virginia, experts anticipate a decline in the child poverty rate from 13 percent to 7 percent... Some economists predict that without a minimum income requirement parents will work less. Some go so far as to claim that parents in deep poverty will work less if the credit is extended, choosing to stay in deep poverty.

"But this analysis approaches the question backward: No child chooses their parents; no child decides if a parent works," she wrote. "And this is a child tax credit, not a parental workforce credit. It is policymakers who face a choice: Do you stand by and let roughly one-quarter of Black and Hispanic children continue to live in poverty? In addition to fighting poverty, the credit supports parents who do work. Currently, two parents with joint income under $150,000 or single parents with income under $112,500, receive the full amount of the monthly credit. The top fifth of all families are ineligible for the full credit. A tighter income means test would punish parents who are already working hard to get ahead."

The Miami Herald editorial board said Congress "failed our children."

"Some critics say the program became too broad because it included couples who can make up to $150,000. That’s a fair concern. But lawmakers should fix it, not scrap the whole thing," the board wrote. "Others have said the money from the tax credits would reduce parents’ incentive to work. A study by the Columbia University Center for Poverty and Social Policy found no evidence of that. There are different economists who say the impact on the workforce isn’t so clear cut.

"But there are some concrete indications that the money is being used for basic needs," the board said. "The U.S. Census Bureau found that many families were spending the money on childcare and school expenses, to pay off debt or to pay for food. Not exactly frivolous stuff. The program isn’t perfect. But it has helped millions of American children, including those right here in Miami. It has provided support to the poor and lower middle class. By failing to extend the child tax credit, Congress is failing our children."

In The Hill, Jessica Tarlov and Antjuan Seawright said the CTC is "the gift that keeps on giving."

"By putting more cash in families’ pockets, Mom and Dad can afford to buy Christmas presents, take the family out to dinner or travel to see extended family," they wrote. "That means more money for businesses providing those goods and services as well as new demand that not only protects existing jobs but may create others. Couple that with expenses such as doctor visits, groceries and diapers that families likely can better afford since they started receiving payments in July, and the impact is easy to see.

"Want to know how the economy managed to create 531,000 jobs in October and roughly 5.6 million jobs in the first nine months of Biden’s administration? That’s a big reason. In fact, unemployment is down to 4.2 percent right now, its lowest point since the pandemic began. That’s not a coincidence. The expanded child tax credit is the gift that keeps on giving, injecting roughly $19.3 billion into local economies, supporting an estimated 500,000 new median-wage jobs over the next 12 months and helping to pull some 4.1 million children out of poverty."


What the right is saying.

  • The CTC Democrats passed is not a cost-effective way to reduce poverty.
  • It will create incentives not to work, and as many as 1.5 million people could leave the labor force.
  • Democrats are trying to hide the real cost of the program.

Bruce D. Meyer and Kevin Corinth said their research indicates making the CTC permanent will "unintentionally" hurt "many of the children it is supposed to help."

"The idea behind this change was to funnel money to families in the midst of a pandemic during which millions of workers lost their jobs," they wrote. "Now, however, lawmakers seek to make the fully refundable credit permanent, based on claims that it will not meaningfully reduce employment and that it will cut child poverty by more than one third. We believe these claims are incorrect. First, replacing a tax credit available only to working families with a flat allowance will serve as a disincentive to work. Our calculations show that 1.5 million parents would leave the workforce, and as a result, child poverty would be reduced by at most 22 percent.

"In addition, even without accounting for the reduction in work, the fact that benefits were increased and made fully available to families making up to $150,000 would make the child tax credit the least cost-effective anti-poverty program in the United States," they wrote. "The country would spend just shy of $30,000 per child lifted out of poverty by the expansion, compared with the less than $16,000 spent per child lifted out of poverty by food stamps or $21,000 for the earned-income tax credit (EITC), based on our calculations."

In USA Today, Nick Adolphsen said even though he is receiving the checks, he wants them to stop.

"The families of nearly 60 million children are getting these monthly checks, including families with good-paying jobs. Families like mine will quickly come to demand taxpayer-funded checks," Adolphsen said. "Worse, we’ll come to depend on the money. It doesn’t matter who you are: You start out not needing the cash only to find that you do need it, just as soon as you spend it. Maybe you bought a new minivan. Maybe you subscribed to a bunch of streaming services. Maybe you put that money into a bigger mortgage on a better house. Regardless of what they use it for, families are already spending the money as if it were always there and will always be there. The name for that is dependency.

"Normally, I have to work hard for $800, but this money came regardless of the effort I put in. While my wife and I recognize that raising kids is its own form of work, it’s a labor of love, not a day at the office. I can’t help but feel that my work is somehow diminished and even unnecessary," he added. "For me, that’s just a feeling. But for a lot of families, it will become a compulsion. The new child tax credit is paid regardless of whether parents work. One study shows that 1.5 million parents could leave the workforce, relying solely on the checks and other government programs."

The Wall Street Journal editorial board said attacks on Sen. Manchin about child poverty are "among the most dishonest" from pundits and Democrats.

"Traditionally someone needed $2,500 in income to claim the child credit, which became more generous as a person earned more to encourage advancement," the board wrote. "This is an extremely modest amount of income, and Democrats torpedoed this threshold for the sole purpose of sending large checks to people who don’t work... Mr. Manchin also had the audacity to wonder whether parents who earn $400,000 need government child benefits... That’s because zeroing out the credit at lower incomes would violate President Biden’s pledge not to raise taxes on anyone earning less than $400,000.

"Mr. Manchin also dared to point out that progressives buried the costs of their expanded credit by extending the benefit for only one year," the board said. "This deception lets the Congressional Budget Office score the cost at $185 billion over 10 years, which lets progressives use budget reconciliation and pass it with only 51 Senate votes. But Democrats say explicitly that their plan is to extend the allowance every year. CBO says the 10-year extension would cost about $1.6 trillion."


My take.

Any discussion about the issue of childhood poverty needs to acknowledge a few basic things: First, there are lots of government programs in place to address it. Food stamps, Medicaid, school lunches, housing subsidies, the earned income tax credit — all of these exist right now to try to address poverty among children and adults.

Second, and Democrats hate to talk about this, but before the pandemic the share of American children in poverty hit a record low under President Trump. 14% of children under the age of 18 were in poverty in 2019, down from 22% in 2010. It fell by 40% among Hispanic children and by almost one-third among Black children. Should we celebrate 10 million children living in poverty in the richest country on earth? Of course not. But that was, in large part, due to a near-decade of Obama-Trump era job growth and wage increases (that Trump inherited a growing and relatively strong economy from Obama is something many conservatives also refuse to acknowledge). Still, there's no doubt that the pre-pandemic Trump economy was, historically speaking, very good for America's poorest citizens (and its richest).

Here's what I love about the new CTC: It's simple. If you have a kid, and make a certain amount of money, the government writes a check and deposits it into your account. That's a lot more straightforward than the programs that require so much more paperwork, qualifications and bureaucracy that many of those who are eligible simply never apply for them. I love that it includes the lowest-income Americans. And I like that the overall value of it has gone up (life is simply a lot more expensive now — and $300/month for a kid is still not a whole lot of cash).

I also like that the most popular criticisms of it seem to at least include kernels of positivity. For instance, nearly every article criticizing the CTC included a link to the study by University of Chicago economists Bruce D. Meyer and Kevin Corinth, who said some 1.5 million parents could leave the workforce because of CTC. But in their own writing they also say "child poverty would be reduced by at most 22 percent." If you read their actual argument (shared in part under 'what the right is saying' above), one of their big gripes is that child poverty won't be reduced by a third, as many Democrats claim, but instead it might ‘just’ be 22 percent. That's not exactly a stake in the heart.

Still, Manchin isn't alone in suggesting the income cap on the CTC should be lower; even progressive stalwarts like Sen. Sherrod Brown of Ohio have made that argument to some degree — though he has strong disagreements about scaling back as much as Manchin wants. I'd be fine to see phase outs for couples jointly filing over $100,000 or $115,000, rather than $150,000, even though in many places that is still a challenging income to raise children on.

What Manchin has suggested, though — a $60,000 household income cap — is far too low. $60,000 goes a lot further in places like West Virginia (or Pittsburgh, just a couple hours north, where I used to live) than it does in many other places. "That income in Arizona, Florida and Virginia buys about 10 to 15 percent less than it does in West Virginia. In California and New York, it buys about one-third less," Claudia Sahm noted.

I also don't see a great deal of logic in a work requirement — at least in an absolute form. Families will rely most on the CTC when they are out of work or have just lost a job. The number of parents who are going to quit jobs because of, say, $600/month, seems low to me. And those parents would be giving up other benefits like the Earned Income Tax Credit (up to $6,000 a year) by not working, a substantial net loss. If they were in a position to quit working because of the credit, they’d almost certainly be spending more time raising their children, which seems like a net plus. Compared to other countries, we’d still have some of the strongest work incentives in the world.

Perhaps the best way to structure it would be similar to unemployment, where someone has to be recently employed or seeking out work in order to receive the CTC. But the working poor are also most likely to be in unstable jobs. Further punishing them with a strict work requirement and removing the safety net when they lose work seems backward, though it's still unclear exactly what Manchin would want a work requirement to look like.

All told, I’ve consistently said the CTC should be Democrats’ primary focus in Build Back Better. It's true the best way to reduce poverty is strong economic growth, rising wages and reduced income inequality. But the CTC, done properly, could be a much more effective policy than other poverty-fighting legislation we've passed — and could be brought to fruition without adding to inflationary pressures. If we view the last five months as an experiment, it went pretty well. If the "bad outcome" is a 22% reduction in child poverty and 1.5 million people leaving the workforce, it’s still worth considering that outcome and how to mitigate the downsides. The focus could absolutely be narrowed to the neediest Americans, and if it takes some kind of loose work requirement and a lower income cap to win over support in Congress, I think that is a trade-off worth undertaking.


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A story that matters.

Democrats and Republicans are discussing another round of coronavirus stimulus spending for an array of businesses like restaurants, performance venues, gyms and even minor league sports teams at risk of going under due to the latest Covid-19 surge. The discussions are in early stages, but are being led by Sens. Ben Cardin (D-MD) and Roger Wicker (R-MS). In December, they put together a rough outline of a $68 billion proposal that includes a mix of new spending and a repurposing of old cash. Sens. Maria Cantwell (D-WA), Mark R. Warner (D-VA) and Susan Collins (R-ME) have also joined the talks, which reflect a growing fear among lawmakers that Covid-19 will continue to hamper economic recovery. The Washington Post has the story.


Numbers.

  • 15%. The percentage of CTC recipients who said the payments helped their families "a lot" in an NPR/Marist poll last month.
  • 64%. The percentage of CTC recipients who said the payments helped their families "a little" in an NPR/Marist poll last month.
  • 14%. The percentage of voters who said renewing the CTC was among the most important elements of the Build Back Better plan.
  • 57%. The percentage of respondents in a YouGov poll who supported the CTC.
  • 21%. The percentage of respondents in a YouGov poll who opposed the CTC.
  • 59%. The percentage of respondents who said recipients should sometimes be required to work.
  • 31%. The percentage of respondents who said recipients should always be required to work.
  • 10%. The percentage of respondents who said recipients should never be required to work.

Have a nice day.

You may have heard about the drivers on I-95 in Virginia who ended up getting stuck on the highway for more than 20 hours after a series of big rigs were involved in an accident that shut the highway down. What you may not have heard about was how some motorists managed to make it through 20+ hours being stuck in their cars. One long-haul trucker with a two-day supply of food popped out of his truck to offer his neighbor a hot meal — a drink and a Jimmy Dean bacon, egg and cheese breakfast bowl. "He was shocked when I -- when he opened the door at first, and you know, I was saying, 'hey, I just made you a hot breakfast and a cup of fruit punch,'" trucker Jean-Carlo Gachet told CNN.


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