Little Kids vs. Big Business
Current U.S. Congressional efforts to expand the Child Tax Credit offer telling insights into the partisan divide.
Once upon a time, the Child Tax Credit had at least some bipartisan support in the U.S. The credit has long been a part of the complicated assortment of federal and state tax policies such as the Earned Income Tax Credit that nod toward the European family allowances that help parents defray childrearing costs. Unlike family allowances, however, the credits have been largely restricted to families earning enough taxable income to make use of a credit to reduce taxes owed, dubbed “non-refundable.”
The first non-refundable Child Tax Credit of $500 was ushered in by Democratic President Bill Clinton in 1997. In 2001, Republican President George W. Bush successfully pushed for an increase to $1000 and at least partially refundability, so that some low-income families could benefit. President Obama increased refundability and also pushed (unsuccessfully) for increased child care subsidies. President Trump’s Tax Cuts and Jobs Act doubled the child tax credit to $2,000 per child without touching the refundability issue.
A much bigger change came with President Biden, who introduced more far-reaching, albeit temporary, modifications as part of the American Rescue Plan, increasing the level of the Child Tax Credit from $2,000 to $3,000 for children ages 6 to 17, to $3,600 for those under age 6 and making the credit fully refundable. Also, the credit took the form of a monthly rather than annual payment to families for much of 2021.
The cumulative effect of Biden’s policy was dramatic, cutting the child poverty rate almost in half, to an historic low of 5.2% in 2021. However, a Republican-dominated House of Representatives refused to extend these changes. As a result, the full amount of the Child Tax Credit reverted to $2,000, and about 26% of all children failed to receive the full amount due to non-refundability.
Clearly, tensions based on race, ethnicity, and class came into play. As Christopher Howard, an expert on U.S. tax entitlements, explained last July, “Republicans have consistently embraced a child tax credit—as long as middle-and upper-income families were the main beneficiaries.”
Still, many voting parents have been peeved by the reduction in both levels and access to the credit, nudging some Republicans and Democrats in the House of Representatives to put together a compromise proposal tweaking the current credit to offer a gradual increase in benefits for both low-income families and those with multiple children.
These days, any hint of bipartisan cooperation seems astonishing, but a closer look at the terms of the deal reveals another dimension of the class divide. In return for a promise of an additional $33 billion for the Child Tax Credit, Democrats promised the exact same amount of additional spending on business tax credits. This, in a year in which corporate profits were close to an all-time high of $3.28 trillion in 2023. The proposed additional spending of $33 billion more for families represents about 1% of this amount, and even Fortune magazine reports that many of the consumer price increases of the last year are attributable to excess profits.
Sometimes the Democrats are described as the Mommy Party, Republicans as the Daddy Party.
I have often wondered how average per capita family spending on children, including the value of unpaid care work, differs between mothers and fathers.
However, given what we know about the effects of child poverty on future economic outcomes,
it’s worth reflecting on the costs that will be imposed on the U.S. economy as a whole by child poverty rates that exceed those in thirty-four of the thirty-eight countries that are members of the Organization of Economic Cooperation and Development (OECD).
Investments in children are investments in the future, which makes the Mommy Party the Party of Human Capital compared to the Party of Financial Capital. I hate being restricted to a choice between these two, but this terminology might strengthen public support for subsidizing future workers and taxpayers more generously than current profits.
Image Credit: Nancy Folbre
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.