The American Rescue Plan has a plan to help children. It would extend the child tax credit for one more year, but it is not decided yet.
The Democrats’ plan will always give back the full amount of the credit.
Keeping refundability will reduce child poverty by 19%. This is according to research done by the Jain Family Institute.
The authors of the paper said, “The key to the child tax credit is making it fully refundable.” This means that even if parents are not working, they will still get money from the government.
In March, the American Rescue Plan expanded the child tax credit as a response to the recession and as one of many responses to the coronavirus pandemic.
The new credit with monthly payments will be $3,000. It will give more money to people with young children, and it can apply to 17-year-olds in the US for the 2021 tax year.
Previously, the EITC was partly refundable. Families need to have earned income to receive money from this credit. Families with children who don’t make a lot of money can now get the benefit even if they don’t earn a lot of money.
If the Democrat’s budget resolution passes, the credit will be extended in this form through 2022.
In 2023, the credit would revert to its previous age requirements and amounts – $2,000 for people under 17. The credit would be offered to families with lower incomes.
Who full refundability helps
If the full refundability is kept, 27 million children will continue to get money through credit. Poverty will be reduced by 30% for people of color, according to the research paper.
Jack Landry, a fellow at the Jain Family Institute and co-author of the paper, said full refundability is especially important for those who are the most vulnerable children in low-income families.
The Democrats’ original plan that would have made the full enhanced credit longer would have helped cut child poverty by about 40%. Or it might not.
Still, if you keep the full refundability of the credits, this will help to reduce child poverty more. This is because it is cheaper than continuing with the bigger $3,000 credit. The cost per year for full refundability is only $17 billion.
There is a child tax credit in the Democrats’ budget, but it’s possible that things could change. Democrats in the Senate need to agree. They will use a process called reconciliation which means they can pass it more quickly than usual.
Advocates want the credit to be always refundable.
If the government has to cut back on spending, they should start by cutting from wealthier families. They should not leave low-income families to the mercy of Congress.