Democrats start to pare back their massive child tax credit expansion

On Tuesday, the Wall Street Journal reported that congressional Democrats have started debating how to pare back the mammoth expansion in the child tax credit included in the House version of their $3.5 trillion spending bill: “Key details of the expanded child tax credit are up for grabs during congressional negotiations, as Democrats debate how long an extension they should pass and whether millions of very-low-income families should get the full benefit . . . in particular, Sen. Joe Manchin’s insistence on a work requirement for the credit is complicating the discussions, Senate Democratic aides said.”

Those concerns echo arguments from the political right that the conversion of the child tax credit into a de facto child allowance is tantamount to restoring work-free welfare benefits for millions of households. As Republicans on the House Ways and Means Committee have put it, this and other policies in the mammoth spending bill amount to “the largest expansion of the welfare state in our lifetime,” under which “individuals get paid to stay on the sidelines, with no expectation or incentive to work or move up the economic ladder.”

U.S. Senator Joe Manchin (D-WV) speaks about support for bipartisan infrastructure deal. Photo by Michael Brochstein/Sipa USA

As the debate over how to pare back this massive new benefit continues to unfold, here’s a user-friendly guide to 10 key arguments to watch:

1. This policy repeals the longstanding work requirement for claiming the child tax credit, instead providing millions of new monthly government checks regardless of whether parents work at all. That undermines bipartisan, successful, and pro-work welfare reforms. As AEI president Robert Doar has written, “You’re right, Senator Manchin: There are no work requirements in Biden’s new safety net.”

2. This policy also repeals the current work incentive for millions of working parents. In its place would flow uniform federal checks unrelated to whether or how much parents continue to work. Those checks for a mother with two young children are bigger than pre-1996 welfare benefits in over 20 states.

3. These new checks are paid to parents each month by a remote bureaucracy without any intervention by social workers or others in a recipient’s community interested in helping them increase their income or address their family’s challenges.

4. An astonishing 65 million children in 39 million households — nearly one in three households in the US — started receiving monthly government checks in July. That’s more new benefit recipients just six months into the Biden administration than now collect the Social Security benefits FDR created in the 1930s.

5. Everyday Americans recognize the obvious problems with permanently paying parents monthly government checks regardless of work. According to an op-ed in the New York Times: “A new YouGov/American Compass poll found that only 28 percent of voters said they preferred the expanded child tax credit to be made permanent and go to all families, regardless of whether they work to earn money.” As one Hispanic dad in Texas said, “Some people will be responsible with it. The other people will just live off of it.”

6. These are mostly new government benefits — not “tax cuts” as President Biden suggests. Most of the new benefits are “refundable” credits, or payments to people who don’t owe federal income taxes — in contrast with “tax cuts” that can only be paid to someone who owes federal income taxes in the first place. During 2021, 80 percent of the new benefits are refundable credits. Of the proposed extension through 2025, 76 percent are refundable credits. That means the lion’s share of even what supporters tout as “tax cuts” in the largest spending bill in history is old-fashioned government benefit checks.

7. These benefit expansions have already turned the IRS into America’s number one welfare benefit-paying agency.

8. Most of the cost of these new benefits is intentionally being hidden. The proposed expansion through 2025 is estimated to cost $556 billion. But President Biden and others have repeatedly called for making these expanded benefits permanent. Doing so would cost an additional $1 trillion over just the balance of the first 10 years.

9. These new checks are already creating the precedent for more and bigger checks to come. Rep. Ilhan Omar (D-MN) recently introduced legislation to permanently provide larger monthly checks to all but the very richest US residents. Her plan is ruinously expensive: It would double federal spending and ultimately taxes if policymakers tried to cover its enormous cost.

10. This policy encourages abuse of the system by including a “safe harbor” that allows parents to keep up to $2,000 per child per year paid to them in error. Especially with tens of millions of new benefit payouts each month, the IRS couldn’t prevent likely widespread abuse of such policies even if it wanted to.

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