The enhancement of the child tax credit has helped reduce food insecurity among low-income families. But there is a way for Republicans and Democrats to come together to restore it.

By Andrew Keshner

The enhanced Child Tax Credit, which ended last year, paid eligible households up to $300 a month per child under age 6 and up to $250 for children aged 6 to 17 years.

Direct cash assistance from child tax credit payments has helped millions of families, significantly reducing child poverty rates. But the pandemic-era enhanced credit was discontinued late last year.

Between July and December last year, the temporarily enhanced Child Tax Credit paid eligible households up to $300 per month per child under age 6 and up to $250 for children ages 6 to 17.

Low-income families with monthly checks of $500 reduced their food insecurity by 32%, and the monthly payments made life easier for some with their medical bills and utility costs, researchers from the Institute said. University of Michigan in a new report released this week. The researchers said the tax credit had a “significant reduction” for these low-income families.

As rising costs squeeze families and recession worries mount this year, some supporters are hoping for a second act for an improved child tax credit when Congress returns after the midterm elections.

The latest study builds on research showing the large-scale consequences of the tax credit. Last year, child poverty levels fell to an all-time low according to one of the Census Bureau’s poverty measures, the agency said in September. The tax credit alone lifted 5.3 million people out of poverty, including 2.9 million children, the census researchers noted.

Previous efforts to extend enhanced credit have failed to materialize, and Congress remains deeply divided ahead of November’s midterm elections.

Still, a “lame duck” session could provide an opportunity as Democrats and Republicans debate corporate tax rules, said Adam Ruben, director of Economic Security Project Action, the legislative advocacy arm of the Economic Security Project, an organization that focuses on financial well-being and solutions to shore up money for middle- and low-income households.

The child tax credit could be used as leverage in such negotiations, he said. “There’s a good chance the monthly child tax credit checks could be restarted and a deal reached before Christmas,” Ruben said. (His organization lobbied for the permanent extension of enhanced credit.)

Before that, there are the November midterm elections. For now, polls suggest Republicans will take control of the House of Representatives. Senate control is a closer call.

To be clear, not everyone thinks a deal is coming. “It’s highly unlikely,” said Ben Koltun, director of research at Beacon Policy Advisors, an independent policy research firm that advises institutional investors.

Credit has enjoyed bipartisan support in its twists and turns over the years, he said, but between Democrats and Republicans now, “it’s too much supply-demand here to create a market.”

Whatever happens next, tax code watchers think the problem is just beginning to unfold – and that’s after President Joe Biden already signed legislation in August providing more money for tax. IRS and a new range of corporate taxes. “The ink on the Inflation Reduction Act is barely dry, but there’s already reason to think Congress could tackle more fiscal issues once it returns for a post-election session,” he said. writes John Buhl, senior communications manager at the Tax Policy Center.

Republicans versus Democrats

There has been political will — on both sides of the aisle — to improve the child tax credit. Exhibit A: As part of the Tax Cuts and Jobs Act of 2017, the Trump administration doubled the child tax credit to $2,000 per child from $1,000.

Exhibit B: The Biden administration’s 2021 US bailout increased the child tax credit to $3,600 for children under age 6 and $3,000 for children ages 6-17. But this increase only lasted a year. The Internal Revenue Service distributed the first half of the sum in advance payments from July to December. The second half was delivered during the 2022 fiscal season.

But the question of whether to restore the enhanced child tax credit could be front and center as Republicans and Democrats spar over how companies can recoup their national research and development costs.

Starting this year, companies are required to gradually amortize these domestic costs over five years and to amortize them over 15 years for foreign R&D.

The Trump-era Tax Cuts and Jobs Act of 2017 (TCJA) allowed companies to immediately deduct all their expensive research expenses from their taxable income in the year they occurred. But the law only let that happen until 2021. The change introducing depreciation was part of the TCJA, which lowered the corporate tax rate from 35% to 21%.

Hence the opportunity to negotiate: there is support on both sides of the aisle for bringing back immediate tax deductions for R&D costs, Buhl and Koltun explained.

Democrats could compromise and reinstate immediate deductions on those R&D costs — if Republicans agree to a beefed-up child tax credit.

“We should never have allowed this essential program to expire, and we should not extend tax relief to businesses at the end of this year without also extending the expanded child tax credit,” said several Democratic senators and representatives. in a statement after the census research was completed. out.

Those who signed the statement included Senator Michael Bennet of Colorado, who is running for re-election. Bennet noted his efforts to strike a deal on the child tax credit during the lame session. In an interview with Colorado Public Radio, Bennet said he spoke with Sen. Mitt Romney, a Republican from Utah, who has his own legislative ideas about the child tax credit and money for families.

Bennett’s campaign and Romney’s office did not immediately respond to a request for comment.

At a White House forum on Sept. 28, President Biden reiterated his support for a permanently expanded child tax credit in his remarks on hunger and food insecurity — a notable mention, he said. Reuben.

Families have heard the rumblings before for beefed up child tax credit checks – each time ending with no gain. For example, the Biden administration pushed for it in a national legislative package, but Senator Joe Manchin, a moderate Democrat from West Virginia, opposed it.

“It really is a different political moment,” Ruben said. The legislative future of enhanced credit isn’t entirely dependent on its own popularity, he said.

“Here, the business tax credit is the driving force,” Ruben said. Lawmakers “must make sure the train doesn’t leave without working families on board,” he added.

Political tempers can cool down a bit and deals can be struck in lame sessions, Koltun acknowledged. “But Republicans might not see an equal trade-off between changes to business expense tax rules and another round of improved child tax credit payments,” he said.

“I don’t think the Democrats have the influence they hope to have,” Koltun said, adding, “Even for a lame duck session, I think that’s a bridge too far,” he said. he declares.

That said, there is still time before many lawmakers feel the need to make more changes, Koltun noted. After 2025, the child tax credit reverts to its $1,000 payments in 2017. “That’s the real bargaining point,” he said.

High-profile bills like the US bailout and more recently the Cut Inflation Act – a climate, tax and health care package – have become law with maneuvers from Congress simply demanding a simple majority in the equally divided Senate. Theoretically, Democrats could try the same thing again, but Koltun doubts party centrists like Manchin would go for it.

So that brings the vote count down to 60 to circumvent the Senate filibuster.

Ruben seems unfazed. “You don’t need 10 Republicans to fall in love with the child tax credit,” he said. “You just need them to be okay with the child tax credit and like the corporate tax breaks and that’s a much easier bar to jump.”

In the meantime, there may still be some consolation for some taxpayers.

The IRS sent direct payments to more than 60 million families, and direct payments exceeded $90 billion, the Treasury Department said. But if eligible households miss all six monthly installments, the IRS said filing a 2021 tax return would be the way to claim it in one lump sum. A 2021 tax return would also be the way to fix a miss on the third round of $1,400 stimulus checks.

There is still time to file that tax return without penalty, but time is running out.

October 17 is the 2021 filing deadline for taxpayers who have received extensions. By mid-May, the average income tax refund was just over $3,000, a 7.5% increase over the remittance amount at the same time a year earlier.

Child tax credit money was one of the likely reasons for the year-over-year increase, tax experts said.

-Andrew Keshner

 

(END) Dow Jones Newswire

10-12-22 0910ET

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