If Congress doesn’t act, however, this measure is set to expire for future payments near the end of the month. The last monthly payment was scheduled to go out on December 15, after which these installments will end. (This year, six monthly payments have been sent out; one larger payment will be distributed next year during tax season 2022.)
The policy, approved this spring as part of the American Rescue Plan, made three key changes to the child tax credit, a provision that enables families with kids to reduce their tax liability. The credit got bigger, up to $3,600 for children under the age of 6 and $3,000 for children between the ages of 6 and 17, an increase from the $2,000 families could previously receive for children 16 and under. It became fully refundable, meaning low-income households could benefit even if they didn’t earn enough to owe taxes. And it made the payments monthly, giving families the option to receive something other than an annual lump sum, as had been the case in the past.
The payments have only been going out since July, but they’ve already had a major impact. In October, they reduced child poverty rates by as much as 28 percent compared to what they would have been otherwise, according to the Columbia University Center on Poverty and Social Policy. If the expanded benefits were to continue long term, it could cut child poverty by as much as 40 percent in a typical year, per analyses by the Urban Institute, drastically improving the lives of many of the nearly 10.5 million US children who lived in poverty as of 2019.
Democrats’ social spending and climate package, the Build Back Better Act (BBB), would extend the policy for another year, but its fate is increasingly uncertain.
According to Senate Finance Committee Chairman Ron Wyden (D-OR), Congress needs to approve an extension by December 28 in order for the Internal Revenue Service to ensure there isn’t a break in payments in January.
Democrats hope to advance the BBB Act by Christmas, though the prospects for doing so are still up in the air, largely because of opposition from Sen. Joe Manchin (D-WV).
With Christmas rapidly approaching and growing concern among the caucus that the bill may fall apart, there’s hope that, if nothing else, the child tax credit — a policy that is perceived as broadly popular and a boon to Democrats’ electoral chances in 2022 — will push Manchin to support the BBB Act despite his misgivings.
It’s “the single best deadline that might get us finally to act,” Sen. Tim Kaine (D-VA) previously told the Hill.
Manchin wasn’t too concerned about the urgency of the deadline when asked about it last week, however, signaling that he believes these payments could be addressed retroactively if needed. “I’ve never seen a situation where we weren’t able to make up whatever you thought time would be lost,” he said at the time.
If Democrats don’t pass the BBB Act before the end of the year, the monthly payments and expansion to the credit will likely end, and child poverty could increase once again as a result.
Millions of children could fall back into poverty
The Center on Budget and Policy Priorities, a think tank focusing on social programs, estimates 9.9 million children could fall back into poverty or deeper into poverty if the credit is not extended. It estimates, too, that poverty rates for Black, Latino, and American Indian or Alaska Native (AIAN) children, in particular, will be hardest hit. If BBB doesn’t pass, poverty rates would be 22 percent for Black children compared to 13 percent if it did, 21 percent for Latino children compared to 12 percent, and 18 percent for AIAN children compared to 10 percent.
All told, the families of roughly 61 million children have received the monthly tax credit payments so far, with many using the funds for basic household needs like food, utilities, and rent payments. Because of the boost that it’s provided, it’s played a major role in helping families navigate economic uncertainty during the pandemic, when many have experienced major child care challenges and a fluctuating employment market.
“Getting these payments now, I know that at least I have help covering food,” David Watson, a technician and single parent of two, told Tiffanie Drayton for Vox in July. “Now I can pull back on overtime. I need sleep, man.” A Census Bureau survey found that food insecurity among families dipped dramatically after the first expanded child tax credit payment. For those making less than $50,000 a year in household income, food insecurity declined from 26 percent of families to 18.5 percent.
Longer term, the credit could enable families to build up their emergency savings and invest in additional activities and opportunities for their children, which they might otherwise be unable to afford. Columbia University researchers found that each $1 distributed via the child tax credit translates to a long-term societal return of $8 in lower health care costs and increased earnings for children who benefited.
An abrupt lapse in these payments, ultimately, could be a major shock.
“In the absence of the CTC, more families — and low-income families in particular — will go hungry more often and be at risk for things like eviction, utility shut-offs, and other hardships,” Stephen Roll, a research professor at Washington University in St. Louis who has studied the effects of the expanded child tax credit, previously told Vox.
There’s a lot of uncertainty around the Build Back Better Act right now
While most Democratic senators are in favor of the expanded child tax credit, uncertainty surrounding the Build Back Better Act is putting the potential of an extension in doubt.
Democratic leaders have been confident that they’d be able to pass the BBB bill before Christmas, but it’s not clear they’ll have the votes by then. Because Democrats are using the budget reconciliation process to pass the bill with a simple majority, they need all 50 members of their caucus on board to approve the legislation.
Manchin, a moderate who has had longstanding concerns about adding to the debt, has repeatedly warned that he believes the costs of the legislation could be much higher if certain programs in the measure are made permanent, indicating that more cuts may be needed to win his support.
He’s pointed to a score from the Congressional Budget Office, which concluded that BBB would add $3 trillion to the debt if its programs were made permanent, instead of sunsetting after a short period of time, though Democrats note that the current bill does not extend policies in this way. The expansion of the child tax credit, for example, is scheduled to sunset after a year, though Manchin argues that its expenses should be evaluated as if it’s being put in place long term.
“I don’t think that’s a fair evaluation of saying we are going to spend X amount of dollars but then we are going to have to depend on coming back and finding more money ... I’m concerned about paying down debt too,” Manchin has argued.
Relatedly, Manchin has suggested the expanded child tax credit’s true cost has been vastly underestimated because of the duration that’s currently used to determine its cost, according to an Axios report. Additionally, Manchin has noted that he believes lawmakers could address an extension even after the policy expires at the end of the year.
Were BBB to stall, lawmakers could also approve an extension of the expanded child tax credit in a standalone bill, though such legislation would require 60 votes in the Senate if Republicans chose to filibuster it. And although there is some Republican interest in the child tax credit, it’s unlikely Democrats could secure the 10 GOP votes needed to overcome a filibuster.
If Manchin’s position doesn’t change, and Congress fails to pass the Build Back Better Act or another bill addressing the issue, the extended child tax credit payments could sunset soon. It would be the premature end of one of Democrats’ most important recent policy achievements, a big loss for their party. And it could have devastating impacts on the millions of children it has helped lift out of poverty in the last six months.