The $ 1.9 trillion US bailout plan, signed by President Joe Biden on Thursday, aims to support the pandemic-affected economy through fiscal measures such as comprehensive unemployment assistance and direct incentive controls. But the legislation also includes a relatively new measure that provides a form of guaranteed income to parents of children under the age of 18, or what one expert calls “a baby step to a universal basic income.”
That’s because the Relief Act includes a revision of the Child Tax Credit (CTC), a 24-year-old part of national tax law that today primarily benefits middle- and higher-income families. The American Rescue Plan is reviewing the CTC by expanding benefits from $ 2,000 per year to $ 3,600 per child. It also includes more low-income households and the credit disbursement is disbursed through monthly cash payments.
Those changes can have a profound impact on millions of families, especially low-income households and those whose incomes can fluctuate from month to month. According to an analysis by the Center for Budget and Policy Priorities, more than 4 million children could be lifted out of poverty, especially children from black or Latino families.
The expanded CTC will require approximately $ 100 billion in additional federal spending. Researchers at Columbia University estimate that it will bring more than $ 800 billion in benefits to society through better children’s health and their long-term outcomes.
“It’s a big deal,” said David Wessel, director of The Hutchins Center on Fiscal and Monetary Policy at The Brookings Institution. “It is one of the most important steps we have taken to lift children out of poverty. In many other countries, the government subsidizes families with children because they are the ultimate investment in the future.”
Rich countries such as Sweden and Ireland offer “child benefits” – direct payments to families to cover the costs of raising children. With the revision of the CTC, the US will join those countries – albeit temporarily – to provide immediate assistance to families with children on a recurring basis.
“It puts us in the same class of other Western capitalist democracies,” added Wessel. “It’s a baby step to universal basic income, or guaranteed income, and it will be interesting to see how it works in practice and how it is perceived by the public.”
Up to $ 3,600
The CTC has helped millions of families over the years, but its peculiar design sometimes ignored the poorest families. Families who owed little or no income tax were only eligible for up to $ 1,400 per child, instead of the $ 2,000 allowance to wealthier families, according to the Brookings Institution.
About 27 million children currently do not receive the full tax credit, said Kris Cox, deputy director for federal tax policy at the Center on Budget and Policy Priorities. “The current set-up of the child discount has been turned upside down,” added Cox.
That created a skewed impact, with lower-income families less likely to benefit from the tax credit than wealthier families. In fact, about 40% of the tax credit went to families earning more than $ 100,000, while only 15% went to households with less than $ 30,000 in income, Brookings noted.
“We want the tax law to elevate our low-income families, and she didn’t,” said Joanna Ain, deputy director of policy at Prosperity Now, a nonprofit that focuses on increasing economic opportunity for households with low income levels. low income.
Under the US bailout plan, the CTC is expanded to $ 3,600 for every child under 6 and $ 3,000 for every child between 6 and 17 years old (credit was previously excluded for children 17 years old). These amounts will also be available to all small children. income families, marking a shift from the previous limits for poor families.
The provision also includes income closures for higher-income households, similar to the income thresholds of the stimulus checks. Single taxpayers earning up to $ 75,000 and married couples earning up to $ 150,000 would receive the full credit of $ 3,000 or $ 3,600 per child, but payments would be reduced for those with incomes above those thresholds.
Families who earn too much to qualify for the extended tax credits can still claim the basic $ 2,000 rebate for their children, provided their income falls below the current thresholds of $ 200,000 for single taxpayers and $ 400,000 for married people. couples.
Monthly payments – for a while
Aside from those changes, the CTC is partially paid out monthly, instead of being claimed once a year when people file their tax returns. In other words, a family with two children under the age of 6 would qualify for $ 7,200 in CTC payments or $ 600 in monthly payments.
But there’s a problem: the monthly payments only run from July to December this year, while the other half of the CTC is paid when people file their tax returns. In other words, households would receive monthly income for six months and then the rest of the CTC through their tax refund.
Still, receiving a guaranteed monthly income for half of 2021 could be a game changer for many low-income families, experts say. Low-income households have been particularly affected by the economic impact of the pandemic, in part because they are more likely to work in jobs that could not switch to remote working
“We see so much volatility in a person’s salary year-round, especially in the salary of low-income families,” Ain said. “The stability of having an amount of money coming in every month will improve their quality of life.”
The Child Tax Credit extension is intended for one year only, meaning the program can revert to its previous form in 2022. However, policy experts hope that lawmakers can extend the expansion, especially if it proves popular with voters. If the provision is not renewed, millions of families could see recurring aid ending after the holidays.
Certainly, the Biden administration and some Congressional Democrats have recognized their purpose make the extension permanentAs part of their Build Back Better agenda, it indicates that they believe an investment in children will pay for itself through a stronger economy in general.
“These things don’t usually go away,” once done, Wessel noted.
Sarah Ewall-Wice of CBS News contributed to this report.