Portside

The 2021 version of the Child Tax Credit (CTC) was a big improvement over prior and current versions. Unlike those other iterations, the 2021 CTC was fully refundable, meaning that no child was too poor to be eligible for the full benefit amount, and it was partially paid out monthly rather than as a lump sum at tax time in the subsequent year. These features, along with the higher benefit amount, made the program more effective at reaching children in lower-income families.

But the 2021 CTC was also flawed in a number of ways that hugely limited its effectiveness. The next time lawmakers try to enact a similar child benefit, they should pass a better version that fixes the flaws of the first one. The End Child Poverty Act (ECPA), which was reintroduced (one-pager, bill text) yesterday by representatives Rashida Tlaib, Ilhan Omar, and Chuy García, would do precisely that.

There were three major problems with the design of the 2021 CTC that the ECPA does not have:

1. Using the tax-filing system to administer benefits excludes children in non-filing tax units. Families with income below a certain level are not required to file tax returns, and many of them do not. Using the tax-filing system thus results in many children, especially very poor children, not receiving the benefits they are owed. This problem has long plagued the Earned Income Tax Credit (EITC) and dragged down the effectiveness of the 2021 CTC. This is also a major problem in Canada, which similarly uses the tax-filing system to administer its child benefit.
2. Using an income test creates unnecessary administrative burdens that result in benefit clawbacks. The 2021 CTC began phasing out at $112,500 of income for single parents and $150,000 of income for married parents, and then again at $200,000 of income for single parents and $400,000 for married parents. To regularly administer this phaseout, the Internal Revenue Service (IRS) would have to collect information on the parental marital status, tax-filing status, family income, and tax unit location of every kid every year. It would also have to guess what this information is going to be in advance, because such information is not knowable until the last day of every year. Incorrect guesses would result in incorrect payments, necessitating quite painful benefit clawbacks in some cases.
3. The 2021 CTC only made half of the nation’s cash child benefits fully refundable. The United States has two major cash benefits for children: the CTC and the EITC. Both benefits use earnings-based phase-ins so as to exclude the poorest children from eligibility. The 2021 CTC got rid of that phase-in but only for the CTC, not for the EITC, despite the fact that the programs are virtually identical and serve the same basic purpose. This means that, even in 2021, the overall US child benefit system was still not fully refundable to the poorest kids.

The ECPA fixes all of these problems and, if passed, would be radically more effective at achieving the aims of the 2021 CTC.

1. The ECPA uses the Social Security Administration (SSA) to administer benefits, not the tax-filing system. Not all children live in families that file taxes. But all children are registered with the SSA at birth, typically at the hospital as part of the birthing process. The SSA also has 1,500 customer-facing offices throughout the country and sends checks to 70.8 million people each month, including to 4.9 million children. For these reasons, the SSA would be far better at reaching every kid in the country than the tax-filing system is.
2. The ECPA does not have an income test. Having no income test means that the SSA does not need to collect information about the parental marital status, tax-filing status, family income, and tax unit location of every kid every year. It also means that parents do not need to submit that information. Instead, once a child is enrolled at birth, the SSA can simply make the child benefit payment every month until a child’s nineteenth birthday. After birth, parents would never need to interact with the agency again unless there was a custody change or some other event that necessitated a change in the payee for the child’s benefit. The ECPA approach still enables the government to limit the disposable incomes of high earners, because that can still be achieved through ordinary taxes rather than administratively burdensome benefit phaseouts.
3. The ECPA replaces the CTC and the EITC. The basic reform of the ECPA is to replace the CTC and the EITC with a universal SSA-administered benefit equal to the difference between the one-person poverty line and the two-person poverty line. In 2023, that would be $5,140 per year or $428 per month. From there, the ECPA ties up some loose ends caused by this change through small modifications to tax credits for adults. So, unlike the 2021 CTC, this reform would actually make the poorest children eligible for the full slate of US child benefits, not just half of them.

Overall, the ECPA is just a much better-designed way to implement the kind of monthly child benefit that almost all Democrats in Congress support. It is understandable why, in the crunch of passing a temporary program as part of a COVID stimulus package, Democrats decided that the best they could do was have the IRS basically turn the CTC into a monthly child-only stimulus payment. But in a nonemergency situation in which the Democrats now have time to actually plan out what they would like the permanent version of this benefit to look like, it is hard to see how any of them can think the 2021 CTC is better than the child benefit in the ECPA.

For the sake of good government, good policy, and actually designing a child benefit that can reach the kids who need it the most, I sincerely hope the ECPA becomes the mainstream Democratic proposal in this policy area.