Expanded Child Tax Credit Ignores Historical Precedents | Columns


Marketing is all about politics. This explains why a tax credit that benefits 90 percent of American families with children – some with incomes over $ 400,000 – is touted as an anti-poverty measure. But in politics, this marketing is often an illusion which masks the harsh consequences of a privileged policy.

With the latest COVID-19 relief plan, Congress expanded the child tax credit, increasing the maximum amount a taxpayer can claim from $ 2,000 per child to $ 3,000 for ages 6 to 17 and to $ 3,600 under the age of 6. The extended portion of the credit begins to decline when income exceeds $ 75,000 for individuals, $ 112,500 for heads of households and $ 150,000 for married couples. The $ 2,000 credit begins to disappear when income reaches $ 200,000 for individuals and $ 400,000 for married couples.

The credit is larger, fully refundable, and does not include any work requirements. This means that parents who do not earn enough money to pay income tax will receive the full amount of the credit in cash from the government, regardless of their income. For example, if you have no income and you have two children aged 6 to 17 plus a toddler, you will earn $ 9,600 per year. Prior to the change, only $ 1,400 of the $ 2,000 credit was refundable. Thus, in the scenario described above, this payment would have been at most $ 4,200. However, the family would have to report a limited income to be eligible.

Starting in July, this money will be distributed in monthly installments of up to $ 250 per month per child between 6 and 17 and up to $ 300 per child under 6, depending on their age at the end. from 2021. From now on, the changes will expire at the end of December, unless Congress renews them. But for that, you need good reasons. There are not any. In fact, there are many reasons not to.

The first is that, as mentioned above, it’s hard to believe that expanding credit is a landmark anti-poverty effort as Democrats claim, given that most families with children will get it, including many high income households. And while the lowest income beneficiaries will benefit from the payments, it is unlikely to make a positive difference in the long run.

For starters, the lack of federal money to fight poverty is not the problem with child poverty. As Robert Rector of the Heritage Foundation recently noted, “Before the COVID-19 recession, the United States spent nearly $ 500 billion on cash, food, shelter and means-tested medical care for families. poor and low income with children. That’s seven times the amount needed to eliminate all child poverty in the United States, according to census figures.

One of the reasons for this anomaly is that most of these benefits are not counted as income in official government poverty reports. But the deepest reason is that no country gets out of poverty through income redistribution. To make any noticeable improvement on the poverty front, people need to improve their ability to earn and move up the income ladder. Unfortunately, this expansion of the tax credit (with no obligation to work or to look for work) is a work brake that could slow down this process – as we saw before in the bipartite reforms of social protection of 1996.

At the time, we also had social assistance benefits with no work obligation. The result was that nearly 9 in 10 families on social assistance were out of work, unmarried births increased significantly, and most of these families were stuck in long-term poverty, creating a trend of intergenerational poverty. children. This cycle was broken with the 1996 reforms obliging social assistance recipients to work or prepare for work. The good news is that this has led to a historic reduction in child poverty.

If this current program is expanded, we risk repeating the mistakes of the past by increasing the number of single-parent families in which no one is employed and reversing the gains the nation has made since the welfare reforms of the 1990s. – all at great expense for taxpayers.

Before Congress begins to distribute more money and centralize more power in the hands of the federal government, lawmakers would need to clean up the regulatory mess they created, which has resulted in a more rigid working environment for them. families, increased child care costs and reduced economic growth.

Véronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.


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