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WASHINGTON – President Joe Biden’s $1.9 trillion COVID-19 relief legislation has passed Congress and includes a change to the tax code that Democrats have praised as a tool to fight child poverty and Republicans have denounced as “welfare.”
Under the legislation, the American Rescue Plan, American families can claim up to $3,600 per child under age 6 and $3,000 for children up to age 17 for one year to help combat the economic damage of the pandemic. House Democrats are looking to make the tax change permanent. The current tax credit is up to $2,000 per child.
Biden supports a permanent extension of the credit, and White House press secretary Jen Psaki said last week he would be “open to look for avenues to do that.” He is expected to sign the legislation Friday.
Here’s what to know about the credit:
Who’s eligible and what does the credit do?
The legislation increases the tax credit from $2,000 to a maximum of $3,600 and expands eligibility to families who make no or very little income each year.
It’s a significant increase from the current amount, an annual $2,000 tax credit that has been in effect since a Republican-led tax overhaul in 2017. Under current law, families are eligible to receive up to $1,400 per child if the amount of tax credit exceeds the amount of taxes owed. It phases out when incomes exceed $400,000 for a household or $200,000 for individuals.
The revised credit would phase out when incomes exceeded $150,000 for a household or $75,000 for individuals.
Unlike the current yearly rebate, the credit will be delivered to families as a “periodic” payment, according to the legislation. The Treasury Department would likely determine the frequency of the payments, which would start in July based on 2019 or 2020 tax returns.
A National Bureau of Economic Research report last year estimated that most children living in the bottom 10% of incomes were “completely ineligible” for the current credit and that the bottom 30% could receive only a partial credit. Half of Black and Latino children were eligible for the full credit.
The left-leaning Center on Budget and Policy Priorities estimated Democrats’ changes would lift 9.9 million children above or closer to the poverty line. Many of those would be Black, Latino, or Asian American children whose families did not qualify because their household incomes are too low to qualify for the tax credit.
According to the Joint Congressional Committee on Taxation, a nonpartisan congressional panel, the proposal could cost more than $110 billion for the year the expanded credit was in effect.
Do Republicans support the proposal?
Republicans opposed the credit’s inclusion in the COVID-19 relief package. Asked Tuesday about the credit, House Minority Whip Steve Scalise, R-La., said Republicans were concerned Speaker of the House Nancy Pelosi “took advantage of the crisis to fill the bill with primarily things that have nothing to do with COVID.”
Previous iterations of the credit have garnered Republican support, however. The last expansion of the credit in 2017 was spearheaded in part by Ivanka Trump and Sen. Tim Scott, R-S.C., and some Republican senators have introduced alternative ways to expand the child tax credit.
Sens. Mike Lee of Utah and Marco Rubio of Florida backed a proposal expanding the credit to $3,500 and $4,500 for young children but tying the benefit to employment.
What’s next for the credit?
Democrats on Capitol Hill are eying a permanent expansion of the credit despite Republican opposition. Expanding the credit permanently could also avert a revocation of benefits from millions of families who will take advantage of the credit in the coming year.
Rep. Richard Neal, D-Mass., the chairman of the tax-writing House Ways and Means Committee, said Tuesday he was considering how to “amend it and make it permanent,” but “what we did is unlikely to go away.”
“Getting something out of the (tax) code is oftentimes harder than getting something in the code,” he noted.
Rep. Rosa DeLauro, D-Conn., who had advocated for the tax credit for nearly two decades, told reporters Wednesday she was “optimistic that it will be permanent.”
Rep. Suzan DelBene, D-Wash., a lead sponsor of legislation making the credit permanent, told USA TODAY expanding the credit in the stimulus bill would “be an incredible step in helping kids across the country,” but the credit was “good long-term policy,” so “we need to make it permanent.”
One progressive Democrat, Rep. Katie Porter, D-Calif., had expressed concerns about the current structure of the tax credit’s income cutoffs, which she said disadvantaged single parents because of the higher costs of raising a child alone.
DelBene told USA TODAY the legislation she was spearheading to make the extension permanent would have an income cutoff of $130,000 for a single parent and $180,000 for a household.
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