Expanding child tax credit seen as helping low-income families, communities thrive

The proposed expansion of the CTC is part of the Tax Relief for American Families and Workers Act of 2024, which also includes provisions to reduce the taxes for corporations and small businesses. It passed by the U.S. House in January with bipartisan support, including 169 Republicans voting for it, but it has encountered strong GOP resistance in the Senate.

Under the proposal, the amount of the tax credit that is refunded to families would rise from the current $1,600 to $2,000 by 2025, according to an analysis by the Brookings Institution. Also, while low-income families would still have to earn at least $2,500 a year to even qualify for the CTC, the phase-in rate would become steeper so families with more than one child could realize the maximum benefit when their annual earnings reached about $16,000.  The credit would still phase out for households with a yearly income of $200,000 for single parents and $400,000 for married parents.

Proponents of the CTC expansion highlight the benefit to children. A study by the Center on Budget and Policy Priorities found that in the first year, 16 million children under 17 in low-income families, who do not currently get the full tax credit, would get a financial benefit. In Indiana, an estimated 326,000 low-income children under 17 would be helped.

However, opponents argue the CTC is costly and incentivizes the wrong behavior. A report by the Heritage Foundation described the tax credit as “new cash welfare benefits” to families that do not pay taxes and asserted the expansion would weaken work requirements and encourage single parenthood.

Marie Morse, executive director of HomeSteadCS in Lafayette, is not surprised the tax relief bill is bogged down in the Senate, noting many bills are not getting through Congress right now. But, she said, lawmakers should take a broader view of the CTC and, rather than focus solely on the short-term costs of the expansion, they should realize the savings that will come in the future.

When children in low-income families gain the security that comes through financial stability, “they’re going to grow up with a different attitude, a different way to live, a different outlook on life,” Morse said. “They’re going to be really successful citizens where if they’ve struggled their whole life, maybe they won’t be. So let’s try to help them when they’re young.”

Indiana’s Republican Sens. Todd Young and Mike Braun are at the center of the fight over the tax relief bill. They are seen as potentially two of the 11 votes needed for the Senate to pass the measure and while neither has expressed support for the CTC, they have each said they like the benefits that would to go small businesses.

Braun did not respond to a request for comment. Young’s office said while the expansion of the CTC is not perfect, the senator is supportive of the bill.

“The proposed tax package addresses several of Sen. Young’s priorities, including boosting research and development and expanding access to affordable housing,” said Jay Kenworthy, spokesman for Young. “While the Child Tax Credit provisions aren’t perfect, Senator Young would like to see a tax package get across the finish line.”

Paying for the necessities

Senators do not have to look far to see how an expanded child tax credit impacted low-income families.

Congress included a boost to the CTC in the American Rescue Plan Act of 2021, which helped lower child poverty by more than 40% and kept 2.1 million additional children out of poverty, according to the Center on Budget and Policy Priorities. However, the pandemic-era relief expired in 2022.

The proposed 2024 expansion differs from 2021 in key ways.

As Sarah Calame, research associate at the Center on Budget and Policy Priorities, explained, low-income families received the full tax credit in 2021, instead of getting a smaller amount that was based on their annual earnings. Also, she said, the credit was increased from $2,000 per child to as much as $3,600 depending on the child’s age, and the entire credit was refunded to parents. Moreover, eligible families received a portion of the tax credit as a monthly check from July through December with the remainder of the relief coming in their tax refund.

Comparatively, the proposed expansion of the CTC, which covers three years, is more modest but also “well targeted.” The expansion, Calame said, would “fix the upside-down structure” of the current child tax credit. Today, 19 million children live in families whose incomes are too low to receive the full $2,000 credit, so the most impoverished are getting a partial refund, while the children living in higher-earning families are receiving the full credit.

Of those 19 million children, Calame continued, 16 million would be helped through the expansion of the CTC by receiving a larger benefit. The CBPP analysis estimated that in the first year of the three-year expansion, about half of the 16 million children live in families who would gain $630 or more, and nearly 40% of the children live in families whose benefit would rise $1,000 or more.

“The scope of the bipartisan bill is smaller than the Rescue Plan, but the changes it does contain are extremely well targeted towards this group,” Calame said. “So that’s why it’s still able to have a very substantial impact. Of the 19 million children left behind under the current credit, 80% of them are helped by this bipartisan expansion. So it’s a very significant impact.”

Toyia Moore, executive director of the Northwest Indiana Reinvestment Alliance in Hammond, could hear the relief brought by the 2021 CTC expansion during the intake interviews with potential clients. Callers, she said, would mention how they were using the monthly checks to help pay rent, medical bills or child care.  In addition to covering the daily expenses, the CTC was enabling low-income families to avoid taking out payday loans or using high interest rate credit cards, which would potentially mire them in deep debt, she said.

Morse also saw the impact of the extra CTC money. The funds, she said, not only helped families pay for groceries and utilities, but also gave them the ability to pay ahead on their rent or mortgage so if an emergency depleted the bank account, they did not have to worry about losing their place to live.

Another benefit of the 2021 expanded CTC, Morse said, was the emotional boost it enabled parents to give to their children. With the extra money, Morse explained, families could pay participation fees so that children could join their friends in extracurricular activities.

“For kids to be part of what everybody else is doing is so important,” Morse said, “not only for the kid’s self-esteem but for them to make connections with people that maybe aren’t in their exact situation. As you get older, to get jobs, you need those connections, and it helps to have that. Just let the kids kind of have what we all think is a normal life.”

Increased voter participation, community involvement

The stability that low-income families can gain with an expanded child tax credit could ripple to the wider community, a review of the relationship between voting and income found.

Randall Akee, associate professor in the department of public policy and American Indian studies at the University of California, Los Angeles, examined voter turnout and noted that while research has shown individuals from higher-income households are more likely to vote than those from poor households, the reason for the correlation is unknown.

Akee speculated money was not a driving factor but rather having a higher income affords families the resources that make voting easier, such as time, information, better health and access to transportation. He pointed to a 2018 study he collaborated on that examined the effect of a permanent increase in household incomes among the Eastern Band of Cherokee Indians in North Carolina. The windfall was the result of a casino opening on the reservation. Akee and his colleagues found the rise in income did not change the parents’ voting behavior, but their children, once they became eligible to vote, went to the polls at a higher rate.

The increase in voter participation among the Cherokee Indian children, Akee said, could be the result of educational attainment and community engagement. Families had more money to spend on their children’s education and they were less likely to move, so they became more connected to their communities, which boosted their civic participation.

“This suggests that income augmentation programs that help children may have other indirect (and long-term) benefits to society in the form of increased political participation and civic engagement as adults,” Akee wrote.

Both Morse and Moore have seen the ripple effect. The pair noted that when low-income families get ahead a little financially, they go back to volunteer at the agencies that helped them or to make a donation. That enables the communities thrive and grow, they said.

“They want to stay in the community,” Moore said of low-income families. “They want to be a part (of their community), they want to build it and (have their) children feel comfortable.”

Families need more support than CTC

In clearing the Republican-controlled House, the Tax Relief for American Families and Workers Act picked up strong support from the Indiana congressional delegation, with seven Hoosier representatives voting for the bill. Indiana GOP Reps. Victoria Spartz and Jim Banks opposed it.

Since arriving in the Democratic-controlled Senate, the bill has stalled.

Prosperity Indiana has been advocating for the CTC expansion. The statewide nonprofit that is focused on strengthening communities has been marshaling support among other Indiana nonprofits that help the poor and talking to lawmakers on Capitol Hill.

Hale Crumley, Prosperity Indiana policy manager, said her organization and its partners in the Indiana Assets & Opportunity Network are appreciative of the Indiana representatives who helped pass the legislation in the U.S. House.

“That version of the Child Tax Credit expansion would benefit roughly 326,000 children in families with low incomes in Indiana if signed into law,” Crumley said in a statement. “During this period of high inflation at the grocery store and rapidly climbing housing costs, both rural and metro Indiana communities need all of the help that they can get. Any markups to the bill would likely result in less aid to families in need.”

One sticking point for many Senate Republicans has been the “look back” provision in the CTC.

This provision would allow families to claim their earnings from either the current year or the year before when calculating the tax credit, according to the Center on Budget and Policy Priorities. The provision is seen as providing a financial buffer to families who suffer a drop in income because of a loss of a job or a health crisis or a need to take time off work to care for children.

However, opponents believe the “look back” proposal will encourage adults with children to quit working and live off the tax credit.

“That’s ridiculous,” Morse said.

“The people that want to do the right thing for their kids, they’re going to work, they are working really hard to do all the right things,” Morse said. “That extra money can help them get out of that mindset and have a moment to breathe, so that they can think about things and plan things, rather than just trying to survive.”

Moore agreed the extra money from the CTC expansion will help but, she said, struggling Hoosier families need more support. She said the high cost of groceries, housing and health care are taking a bigger bite from household budgets, even as many working families have gotten raises in their paychecks.

“I tell people, life is going to happen to all of us in one way or another. You’re going to wake up to the car having a flat tire, the hot water heater goes out or your children need something,” Moore said. “And a lot of people can’t even make it to that emergency.”