Child tax credit expansion helps, but ...
It will be accompanied by a massive tax cut for business. Think what government could do if all the money was spent where it is really needed.
How did Democrats convince the Republican-run House of Representatives to restore a fraction of the COVID-era child tax credit? Easy. All they had to do was shovel six times more money to corporate America than the bill spends on low-and moderate-income families with children.
The House last night passed the disingenuously-named Tax Relief for American Families and Workers Act by a 357-70 margin. Twenty-three Democrats, mostly on the political left, joined 47 Republicans, mostly on the political right, in opposing the bill.
For weeks, the press has focused on the portion of the bill that will provides low-and-moderate income families with a fully refundable $2,000-per-child credit tax credit. Current law denies the credit to families that owe nothing in federal tax and thus excludes those on the very bottom of the income scale.
The Congressional Budget Office projects that provision in the bill will cost the government $30.6 billion over the next three years. The Center for Budget and Policy Priorities estimates it will lift about a half million children out of poverty – but only until it expires 2027.
That sounds pretty good until you realize that is just one-sixth the number lifted out of poverty by the American Rescue Plan, the Biden administration’s 2021 COVID-relief bill that expired in 2022. That legislation raised the fully refundable child tax credit to $3,000 for children over six and $3,600 for those under six. As Matthew Desmond, a Princeton University sociologist, Pulitzer Prize winner and author most recently of Poverty, by America, wrote in a new New York Review of Books essay (subscription required) on COVID-era social policy:
The American Rescue Plan, and the expanded child tax credit in particular, reduced child poverty to its lowest rate in US history, driving it down by 44 percent in six months. Forty-four percent. Six months. When Christmas came in 2021, 5.5 million fewer children were living in poverty than had been the previous Christmas. The extraordinary progress displayed during the pandemic should make it impossible for anyone to still maintain the false belief that poverty cannot be ameliorated by government action.
That 2021 COVID-relief program wasn’t just for the poor. It bolstered the incomes of nearly all American families with children. That’s why it cost $94 billion, 98 percent of which was deemed appropriately spent by a committee of government inspectors general charged by Congress with monitoring relief spending.
The Bribe
So how much did the bipartisan coalition of Republicans and Democrats insist on shoveling to Big Business before they would agree to provide limited help to kids from lower-income families?
$185 billion. That’s over the next two years, after which it will come up for renewal like all the corporate and upper income tax cuts passed in the 2017 tax cut bill. That legislation was the Trump administration’s single legislative accomplishment, if you can call giving away $2 trillion over ten years to corporations and the well-to-do an accomplishment.
Like most corporate tax cut bills, this latest giveaway is a true goody bag. Businesses will be able to expense research and development costs instead of spreading out the deduction over five years (a gift to the pharmaceutical and other research-intensive industries); increase the amount of interest expense that can be deducted from taxable income; increase the depreciation allowance (a gift to the oil and gas industry); and extend the inflation adjustment on depreciating assets.
These gifts to a corporate America swimming in profits will cost as much over the next two years as nearly every American family with children received in tax credits during the first disastrous year of COVID.
To be fair, some of that revenue will be recouped by cracking down on misuse of the Employee Retention Tax Credit that was created during COVID to help businesses keep employees on the payroll. The IRS commissioner recently confirmed the accuracy of estimates that 95% of employer claims were fraudulent, according to the Associated Press.
Many of those claims were ginned up by “consultants” who, through advertising and word-of-mouth, encouraged businesses to take advantage of the program. It’s the primary reason why a program slated to cost $55 billion when passed ended up costing five times more.
Still, the bill is considered deficit neutral by assuming Congress won’t continue the tax breaks for business beyond 2025 and the child tax credits beyond 2026. Whether that will be the case will be determined by what happens in November.
I'm assuming that the tax part of the legislation will lift three times as many kids out of poverty as the child tax credit, which probably will be used to buy crack, beer, junk food, TVs, iPhones and cars.