Congress appears poised to enhance the child tax credit, with millions of families set to benefit.
The agreement was announced by House Ways and Means Committee Chairman Jason Smith, R-Missouri, and Senate Finance Committee Chairman Ron Wyden, D-Oregon.
In 2023, President Joe Biden proposed raising the child tax credit from $2,000 per child to $3,000 per child for children 6 years old and above, and to $3,600 per child for children under 6. Parents received an expanded child tax credit in 2021 as part of pandemic relief, but the credit lapsed despite efforts among Democrats.
The lawmakers' proposal doesn't go as far as President Biden's plan, but proponents say it will reduce the number of children in poverty.
Currently, households earning $200,000 ($400,000 for couples) with children ages 16 and under are generally eligible for the full $2,000 amount, but only $1,600 of that amount is considered refundable.
Americans living paycheck to paycheck unchanged from a year ago
Inflation has dropped in the last year, but there are more Americans struggling to pay bills than a year ago.
The lawmakers' plan would include a phased increase to the refundable portion of the child tax credit for 2023, 2024 and 2025. It would adjust the tax credit for inflation starting in 2024. It would also provide flexibility for taxpayers to use either current- or prior-year income to calculate the child tax credit in 2024 or 2025.
"Fifteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead," Wyden said.
According to an analysis of the plan by the Center on Budget and Policy Priorities, 50% of children who reside in eligible households live in households that would gain $630 or more. About 25% of children who reside in eligible households live with families that would gain $1,400 or more.
"A married couple — with one parent earning $32,000 as a nursing assistant and the other parent staying home to take care of their three young children — would gain $975 in the first year," the Center on Budget and Policy Priorities said.
Expanded child tax credits, along with other government assistance programs provided during the COVID-19 pandemic, was credited with reducing the childhood poverty rate by nearly half.
The U.S. Census Bureau estimates that the child tax credit kept5.3 million people out of poverty in 2021. In 2022, with the child tax credit returning to its normal levels, it kept 2.4 million people out of poverty. Essentially, by expanding the child tax credit, the U.S. Census Bureau estimates nearly 3 million were kept out of poverty in 2021.
The Center on Budget and Policy Priorities estimates that Smith and Wyden's plan would lift about 500,000 American children out of poverty.
The lawmakers' announcement was part of a broader plan to end the Employee Retention Tax Credit Program, enhance the Low-Income Housing Tax Credit and increase the amount of investment that a small business can immediately write off to $1.29 million from the current cap of $1 million.
