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senate Bill S. 690

Should the Child Tax Credit Be Increased & Made Fully Refundable?

Argument in favor

The child tax credit helps families better deal with the costs of raising children. Increasing it would help lift millions of children out of poverty and increase their opportunities.

Argument opposed

This proposal could be wildly expensive and increase already-unsustainable budget deficits. It would also increase disincentives for work which could drive capable & innovative workers out of the labor force.

bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Finance
    IntroducedMarch 6th, 2019

What is Senate Bill S. 690?

This bill — the American Family Act of 2019 — would expand the existing Child Tax Credit with a new $300 per-month, per-child credit for children under 6 years of age and a $250 per-month, per-child credit for children under 17 years of age — increasing the credit for all children and making the credit fully refundable for the first time.

Specifically, this bill would: 

  • Create a New Expanded Credit for Children under 6. The bill would create a new Young Child Tax Credit (YCTC) of $300 per month ($3,600 per year) for children under 6 years of age, up from the current maximum of $2,000 per year.
  • Increase the Maximum Child Tax Credit for All Children under 17. The bill would expand the Child Tax Credit (CTC) to $250 per month ($3,000 per year) for children 6 years of age or older, up from the current maximum of $2,000 per year.
  • Make Both Credits Fully Refundable. The bill would make both the YCTC and CTC fully refundable, meaning that all low-income families would receive the full credit for each child. The current CTC only begins to phase-in after a taxpayer has earned $2,500 of income and at a rate of 15 cents for every dollar of additional income. In addition, only $1,400 of the $2,000 credit is refundable.
  • Benefit the Middle Class. The bill would provide a tax credit for all individuals with children who earn less than $150,000 per year and all married couples with children who earn less than $200,000 per year.
  • Index the Credit for Inflation. The bill would index both YCTC and CTC levels for inflation (rounding to the nearest $50) to preserve the value of the credit going forward. The current CTC is not indexed for inflation.
  • Set Up Advance Payments on a Monthly Basis. The bill would call on the Treasury Secretary to set up monthly advance payments for the YCTC and CTC no later than a year after passage for taxpayers anticipated to receive a refund. Monthly payments would smooth families’ incomes and spending levels over the course of a year, helping them make ends meet during difficult months.

Impact

Families; middle-class taxpayers; and the child tax credit.

Cost of Senate Bill S. 690

A CBO cost estimate is unavailable.

More Information

In-DepthSen. Michael Bennet (D-CO) reintroduced this bill from the 115th Congress to overhaul the existing Child Tax Credit and make it a “dramatically more effective tool for supporting middle-class families with kids and reducing child poverty”: 

“I’ve met with parents across Colorado who tell me the paychecks they bring home aren’t enough to support their families, especially as the costs of child care, health care, housing, and higher education continue to rise. That’s because 90 percent of Americans haven’t seen a significant raise over the last 40 years. The American Family Act is a big part of how we respond to that problem, which I see as one of the central economic challenges of our time. This bill also addresses a problem we don’t discuss enough—child poverty—by cutting it by 38 percent. I can think of nothing more at war with who we are as Americans than allowing kids to grow up in poverty. I’m hopeful today’s strong show of support will move us closer to signing the American Family Act into law, because for the families we represent, that day can’t come soon enough.”

When he introduced this bill last Congress, Sen. Bennet said

“Far too many parents are struggling to make ends meet, with paychecks that don't stretch far enough to deal with the rising costs of raising a child. The evidence is overwhelming: children perform better in school, are healthier, and are more likely to succeed in the economy of the future if their parents can afford to raise them in an environment that allows them to thrive. This bill would help relieve the substantial financial burdens on parents in the middle class and those striving to make it there, allowing them to invest in our most important asset - our kids' future."

Rep. Rosa DeLauro (D-CT), sponsor of this bill’s House companion, says

“The American Family Act will help millions of families across the United States who are striving to provide the best possible future for their children. In fact, according to a new study from the National Academy of Sciences, expanding the Child Tax Credit as we do in this legislation would reduce extreme childhood poverty by half. That is why we must push to pass the American Family Act and ensure that families have the resources they need to pay their bills and get ahead. Increasing the value of the Child Tax Credit, creating the Young Child Tax Credit for families with children under the age of six, and making both tax credits fully refundable would have a powerful impact on our youngsters’ health, their education, and their future.”

Jane Waldfogel, Compton Foundation Centennial Professor at the Columbia University School of Social Work, says that this legislation would benefit millions of children and end the most extreme forms of child poverty in the United States

“The United States stands out from other advanced economies in not having a universal child benefit that provides help to all families with children. As a result, the child poverty rate in the United States is alarmingly high, resulting in diminished opportunity for too many American children and immense costs to American society over time. Passing The American Family Act– introduced by Reps. DeLauro and DelBene and Sens. Bennet and Brown – into law would be a huge step forward towards addressing that gap, lifting millions of children out of poverty and effectively ending the most extreme forms of child poverty in America today.” 

In an analysis for the Institute for Family Studies, Lyman Stone noted that this proposal would be quite expensive

“The AFA's cost estimate runs at about $90 billion above current spending levels. Without raising new revenue somewhere else, it will make a big hole in the national budget. Neither party has much practical concern for fiscal responsibility, as demonstrated by equal-opportunity budget-busting under Obama and Trump, but while politicians may not care about what debts they pass on to their kids, family-policy analysts probably should.”

However, Stone points out that there are “easy ways” to pay for a child allowance

“[I]t’s easy to find ways to pay for a child allowance. For example, the federal government raises about $90 billion per year in taxes on alcohol, cigarettes, guns, gasoline, and other excisable products. Most of these products are either luxury goods or have a tendency to hurt and kill people or damage the environment. And while many conservatives may be upset about bullets costing 9% more than they currently do, that’s a small price to pay for cutting child poverty in half, making Social Security more solvent, strengthening middle-class family life, and pushing the birth rate back towards something that can actually sustain a civilization without needing mass migration to prop it up… [W]hile conservatives may balk at a $90 billion expense, it’s easy to find ways to pay for it that conservatives can endorse. Charging urban progressives a few cents more for their $18 cocktails to pay for parents to buy diapers is worth it.”

In another potential complication, Stone notes that this legislation would probably have a slight work-discouraging effect

“There’s an argument that providing a child benefit will reduce work effort by parents. There’s some truth to this. What economists call the “income effect” means that providing people unrestricted cash probably reduces how many of them work. Academic research suggests that child allowances do somewhat reduce work effort, particularly among married women. Across a range of studies, the evidence suggests that married women’s labor supply is about 35% more responsive to a child allowance than single moms: and that’s not accounting for the fact that many married women are not moms. Among just married moms, the effect is probably much larger. That said, the evidence is mixed: in Canada, implementing a child allowance led to more women working.” 

This legislation has 37 Senate cosponsors, including 36 Democrats and one Independent. Its House companion, sponsored by Rep. Rosa DeLauro (D-CT), has 184 Democratic House cosponsors. Neither bill has received a committee vote. Last Congress, Sen. Bennet introduced it with the support of 10 Democratic Senate cosponsors and it didn’t receive a committee vote.

A number of academics and organizations support this legislation. They include Hirokazu Yoshikawa, Professor of Applied Psychology at New York University; the Niskanen Center; National Women’s Law Center; Child Care Aware of America; MomsRising; the Economic Security Project; ZERO TO THREE; the Center for American Progress; SEIU Local 2001; and First Focus Campaign for Children.

Vox’s Dylan Matthews says this legislation “almost certainly won’t pass this session,” since the Republicans hold the Senate and it may not garner any Republican support. He adds, however, that since this bill could easily be passed through budget reconciliation, “it has a strong shot at being enacted the next time Democrats have a governing trifecta in the House, Senate, and presidency, whether that’s in 2021, 2025, or later.”


Of NoteThe Columbia University Center on Poverty and Social Policy found that this bill would cut child poverty by 38%, moving four million children out of poverty and cutting deep poverty among children by half. Similarly, the Niskanen Center’s researchers Samuel Hammon and Robert Orr also found that this legislation would: 

  • Create an average net-benefit of $1,355 per family;
  • Reduce the number of children in poverty by 4.5 million (a 39% reduction);
  • Reduce the number of adults in poverty by 3.2 million (a 10% reduction);
  • Eliminate absolute child poverty; and 
  • Reduce deep child poverty by 50%

Passing this legislation would enact a child allowance in the U.S. and bring it in line with Canada, the United Kingdom and most of the industrialized world in guaranteeing a basic payment for the care of children. A child allowance or similar policy exists in almost every EU country, as well as Canada and Australia. In many countries, the payments are universal, so the money is distributed regardless of parents’ earnings. In others, such as Canada, the payments phase out for top earners, but almost everyone else benefits. France has an unusual scheme in which only families with two or more children receive benefits, as an incentive to have more children. 

Regardless of the mechanism, the core principle is the same in every system: low- and middle-income families are entitled to substantial cash benefits to help them raise their children. Consequently, child poverty rates are much lower in European countries versus the United States: in the U.S., about 11.8% of children live in absolute poverty, whereas only about 6.2% of German children and 3.6% of Swedish children do.

Under current law, eligible taxpayers can subtract up to $2,000 per qualifying child from their federal income tax liability. A qualifying child is generally the taxpayer’s dependent child who is under 17 years of age. The maximum amount of credit a family can receive is equal to the number of qualifying children in a family multiplied by $2,000.

If a family’s tax liability is less than the value of their child tax credit, they may be eligible for a refundable child credit calculated using the earned income formula. Under this formula, a family is eligible for a refund equal to 15% of their earnings in excess of $2,500, up to the maximum amount of the refundable portion of the credit. The maximum amount of the refundable portion of the credit is $1,400 per qualifying child. The refundable portion of the child tax credit is often referred to as the additional child tax credit, or ACTC. As with other refundable tax credits for individuals, taxpayers claim this credit annually, when they file their federal income tax return.

The credit phases out for single parents with income over $200,000 and married couples with income over $400,000. The taxpayer must provide the social security number (SSN) of their child to claim the credit. After 2025, many of the parameters are scheduled to revert to pre-TCJA levels.

The Congressional Research Service (CRS) produced analyses of the tax credits three different sized families would receive under current law (from 2018-2025), current law from 2026 onward and this proposal: 

Married couple with two children:

  • Eligible for up to $4,000 of child tax credit under current law; or
  • Eligible for a $6,000 credit under this bill. 

Married couple with two children both under six years old: 

  • Eligible for up to $4,000 of child tax credit under current law; or
  • Eligible for a $7,200 credit under this bill. 

Married couple with two children, one under six years old and one six to 16 years old: 

  • Eligible for a child tax credit of up to $4,000 under current law; or
  • Eligible for a $6,600 credit under this bill.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / evgenyatamanenko)

AKA

American Family Act of 2019

Official Title

A bill to amend the Internal Revenue Code of 1986 to make the child tax credit fully refundable, establish an increased child tax credit for young children, and for other purposes.

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