Paul L. Caron
Dean




Monday, November 22, 2021

Hemel: Make The Expanded Child Tax Credit Permanent With This One Easy Trick

Daniel Hemel (Chicago; Google Scholar), Make the Expanded Child Tax Credit Permanent With This One Easy Trick:

Here's how Democrats can significantly reduce child poverty over the long term.

The Build Back Better Act—which passed the House by a 220-213 vote on Friday—makes important changes to the child tax credit. It extends the $3000-per-child credit ($3600 for children under age 6) through 2022. And it makes the credit fully refundable on a permanent basis. By one estimate, these changes will reduce child poverty by more than 40 percent within a single year.

Unfortunately, the $3000 credit (or $3600 for young children) won’t last long. In 2023, the credit amount will fall back to $2000 per child. And starting in 2026, due to a sunset provision in the Trump Tax Cuts and Jobs Act, the credit will fall to $1000 per child. Ideally, congressional Democrats would have agreed to make the entire child tax credit expansion permanent. They could have offset the cost by taxing unrealized gains at death, eliminating the passthrough-deduction giveaway, and raising the corporate income tax rate to somewhere in the mid- to high-20s. Alas, some Democrats decided that they would rather let millions of children languish in poverty than enact common-sense revenue-raising tax reforms.

But as the Build Back Better Act moves to the Senate, and then most likely onto a House-Senate conference to hash out inter-chamber differences, Democrats still have an opportunity to make the expanded child tax credit permanent starting in 2032—at least for children in low and middle-income families—without any further tax increases. That’s because the bill’s permanent corporate and international tax reforms and its permanent tax increases for high-income individuals raise a significant amount of revenue in “out-years” (i.e., years beyond the 10-year budget window). Under budget reconciliation rules, Democrats can use out-year revenue to offset out-year tax cuts or spending as long as the net deficit impact is neutral. Right now, though, Democrats are effectively leaving out-year money on the table. ...

Democrats have an opportunity to transform the enhanced child tax credit from a temporary blip to a historic victory in the six-decade-long War on Poverty. They should seize the moment. In a perfect world, they would make the political sacrifices necessary to establish a permanent enhanced credit beyond tax year 2022. But if they won’t do that, then a permanent enhanced credit starting in 2032 would be a better-than-nothing consolation prize.

https://taxprof.typepad.com/taxprof_blog/2021/11/hemel-make-the-expanded-child-tax-credit-permanent-with-this-one-easy-trick.html

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