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The Contradictions in Democrats’ Child Tax Credit Expansion Promises

RealClear Policy

May 30, 2024

Politicians regularly vie for the support of parents with promises of good schools, bigger family benefits, and tax relief. President Joe Biden did just that last week in calling for increased funding for public education, child care, and more. Sometimes just the language of the proposal—like the president’s call to expand the child tax credit (CTC)—appears to say it all. But in politics appearances can be deceiving, and Democrats’ promises to expand the CTC conceal a series of contradictions. Instead of constituting tax cuts for working families as they claim, the policies mostly provide benefit increases (including for nonworking families) that in reality reflect an aggressive pro-welfare agenda.   

Despite being the party of tax hikes, Democrats regularly—and wrongly—suggest their plans to expand the child tax credit are all about “tax cuts.” The White House says the current Biden administration budget proposal to expand the CTC “cuts taxes for working families.” But as official government data make clear, that’s misleading. In fact, over 90 percent of what the White House calls CTC “tax cuts” are actually bigger benefit checks dispensed by the IRS.

None of this is new. In a 2021 speech hailing the massive, but temporary, CTC expansion the administration is now hoping to revive, President Biden called the policy a “tax cut” 15 times. In reality, the policy was so tilted toward benefit increases it turned the IRS—America’s tax collection agency—into our country’s biggest welfare dispenser.

Why are policymakers so eager to cast benefit increases as tax relief?

One important reason involves obscuring who would collect the greatest benefit increases. While the White House suggests its proposed expansion aids “working families,” those gaining the most from its proposal are nonworking families currently ineligible for the CTC. Polls regularly show that paying bigger benefits to nonworkers is a surefire political loser. This political reality has sent supporters scurrying for the rhetorical cover provided by suggesting such benefit expansions are somehow “tax cuts.”    

Under permanent law, the CTC has always required parents to work, if only part time, and its value has always grown as low-income parents work and earn more. That means the current CTC includes both a work requirement and a work incentive. Another way of saying that is nonworking parents have never qualified for the CTC—except under the temporary 2021 expansion the administration is trying to revive. Reviving that pandemic expansion would eliminate both the work requirement and work incentive features of the CTC by paying the same full benefit (up to $3,600 per year per child, depending on age) to working and nonworking parents alike.

As a result, nonworking parents—who don’t owe any federal income or payroll taxes—would see the biggest benefit increases, with their CTC benefit payment suddenly matching the tax refunds of working, taxpaying parents. Indeed, for millions of parents who work part time or not at all, the proposed policy offers only benefit increases and no tax relief at all, since they don’t owe federal income taxes in the first place. For a nonworking parent with three younger children, the new benefit could exceed $10,000 per year—paid on top of often tens of thousands of dollars in current welfare, food stamps, Medicaid, housing, or other benefits.

For nonworkers especially, these new benefit checks would effectively revive the entitlement to work-free welfare checks eliminated a generation ago by bipartisan reforms President Bill Clinton signed into law. That welfare reform law expected low-income parents to work or train in exchange for welfare checks, and its enactment was followed by historic increases in work and earnings and matching declines in poverty and welfare dependence. Reviving work-free federal benefit checks for parents would not only undo that major achievement, it would disproportionately harm low-income families for whom work is central to escaping poverty for good. Instead, as AEI’s Kevin Corinth, Bruce Meyer, and colleagues found, if made permanent the policy would lead “1.5 million workers (constituting 2.6% of all working parents) to exit the labor force.”

Small wonder that proponents prefer to mischaracterize this policy as “tax cuts for working families” rather than admit what it is—a desperate attempt to turn back the clock and once again promote dependence on welfare checks and other taxpayers over work and self-support.