Women and families need financial relief amid the ongoing affordability crisis — high mortgage and rent rates, elevated grocery prices, rising gas prices, and skyrocketing utility bills. With just a few weeks left in tax season, one lingering question is whether Congress can deliver a little more breathing room to families through the tax code.
The Tax Relief for American Families and Workers Act of 2024, a House-passed tax package that includes positive pro-growth tax changes for businesses along with financial relief for working households, sits before the Senate. There are understandable concerns about temporary changes to the Child Tax Credit provision (CTC) included in the package — changes that could unintentionally undermine work requirements.
Here is what should be understood about the CTC, proposed changes, and the importance of the opportunity before us.
Currently, the CTC reduces tax liability up to $2,000 in credit per child, and it is partially “refundable” up to $1,600 (meaning you could get it even with no tax liability). To qualify for the credit, families must show at least $2,500 in earnings over the year. It then phases in at a rate of 15 percent per dollar of earnings over $2,500.
In 2021, President Biden and Democrats successfully warped the CTC by hiking it up to $3,600 per young child and $3,000 per school-aged child, making it fully refundable, and advancing it through monthly checks. This was a back door to universal basic income (UBI).
Thankfully, the Biden changes expired, bringing us back to the Trump-era tax credit. Proposed changes would increase the refundable levels for several tax years, tie the full credit to inflation, and allow tax filers with multiple children to receive a larger credit at lower levels of earned income. This creates an incentive for more people to work.
The left has been parading the Child Tax Credit as if it were their own, touting how many children have been lifted out of poverty as part of Biden’s remake of the CTC through the inflationary American Rescue Plan, which spurred 40-year-high inflation in 2022. In truth, the CTC is a conservative idea from start to finish. The CTC was the brainchild of Republicans as part of the 1994 Blueprint for America to elevate the primacy of families in society.
Subsequent Republican administrations and Congresses expanded the tax credit and added or retained important work requirements to ensure that it did not become another form of welfare. As Ryan Ellis explained, “In its modern form, it is a combination of pro-family tax policy and a replacement for the now-defunct dependent exemption.” Workforce engagement has always been central to the CTC, and it still is.
Conservatives rightly believe that proposed changes to the tax credit should not create significant disincentives to employment. A sticking point has been a “lookback” provision that permits tax filers to use the previous or current year’s income to qualify for the refundable portion of the credit. This gives workers the grace to still receive the credit; they only lose it if circumstance leaves them out of work for an extended period of time, such as an unforeseen layoff, the birth of a child or sickness. But that grace is only for one year, after which they would lose it.
Some people have taken this provision to be an excuse for workers to cycle in and out of the workforce — creating a disincentive to work. However, many other economists from across the ideological spectrum (including the Tax Foundation, AEI, Brookings, and the Center on Budget and Policy Priorities) criticize this argument and say the assumption about worker behavior is implausible. Logically speaking, would hundreds of thousands of workers really leave jobs paying tens of thousands of dollars in earnings paid weekly, which they need to pay for daily household expenses such as food, child care, and clothes, just to claim a one-time tax credit worth a few thousand dollars?
Also, there is a countervailing force pulling workers into the workforce. Changes to the phase-in of the CTC would incentivize more families at the lower end of the income spectrum. The Congressional Joint Committee on Taxation balances the two potential effects and finds that “the proposed expansion of the child tax credit on net increases labor supply.”
Let’s not lose sight of the big picture. The CTC is an element of an entire tax bill that delivers corporate tax changes (even if temporary) that would spur economic activity.
The unemployment rate is steadily ticking up, it takes longer for workers to find new jobs, excess pandemic savings have been depleted, and the decline in real wages has left working families treading water. Whenever Congress can revise the tax code in ways that spur growth for businesses and provide relief to families, it shouldn’t pass up the opportunity.
Patrice Onwuka is the director of the Center for Economic Opportunity at Independent Women’s Forum (iwf.org/CEO) and co-host of WMAL’s O’Connor & Company.
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