The Child Tax Credit at 25 Years

Finance Taxation and IRS Oversight: Assessing 25 Years of the Child Tax Credit (1997-2022), July 13, 2023

I comment today not to praise the Child Tax Credit, but to reform it.

I would make the Child Tax Credit generous enough to abolish Food Stamps for families with children. The child tax credit should provide adequate income to feed, clothe and house an additional child, which can be up to $1000 per month. The current amount, which is set to expire in 2025, is $2000 per year. It will revert to $1000 per year, or less, because it is non-refundable. During the pandemic, it was $3,000 per year, or $3,600 for younger children. The President’s Budget proposes this amount be restored and made permanent. It is not adequate, but it's a start.

To increase the incentive to work and grow the economy, the credit must be made fully refundable. People do not seek out low wage jobs because the credit is too generous. Just the opposite is true. When family wages are adequate, people make investments in themselves, like further education and skills training, so that they can move up the economic ladder.

The President’s Budget proposes that the Child Tax Credits enacted as part of the American Recovery Plan Act be restored. During that period, payment of the child tax credit was in advance of the annual tax filing. This is appropriate and will change the culture of such credits, which should be for continuing support, not an annual bonus. 

We agree with increasing the CTC to at least American Rescue Plan Act levels and refundability. Again, we would make it $1,000 per month and phase it out from the median income to the 90th percentile. 

During the pandemic, the IRS managed payments. Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare” that the Gentleman from West Virginia so objects to.” I advise such Senators in both parties to raise the minimum wage so that no one is having to work just to receive this credit and that the best way to distribute the credit is with wages.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. 

Students with families in government funded training programs, from ESL to the last two years of high school to an associates degree, with families would also receive the child tax credit. The credit in these cases, along with training stipends, should receive their credits through the training institution.

Additionally, for people receiving Unemployment Insurance, there should be just one check and it should include the Child Tax Credit. The Credit should also replace dependent payments under Social Security Survivors and Disability Insurance programs, which will increase their solvency. 

Tax reform can be used to facilitate the reform process. Instead of having each family file to collect their child tax credits and EITC (as an end of the year bonus), enact an employer paid subtraction value added tax and make child tax credits and health insurance tax benefits an offset to the payment of this tax and remove most families from having to file at all. Tax offsets could also be created to fund paid family medical leave, sick leave and childcare provided through employers.

One of the central proposals in this plan is the creation of a Subtraction Value Added Tax (Net Business Receipts Tax), which would replace the corporate income tax and filing of business taxes as part of the personal income tax.  The difference between changing quarterly withholding and enacting a subtraction VAT  is six of one and a half dozen of the other. 

The reason for this is that the proposed subtraction VAT is based on the notion that employers would be responsible for paying and reconciling the taxes now filed by employees. This would add little additional burden to employers (especially the self-employed) but end the burden of filing taxes for all but the highest salaried employees.

Please see the attachment for the latest details of our tax reform plan. This approach is superior to the prebate mechanism proposed for the Fair Tax and for the same reason. Again, the government should not be the national paymaster for every family.

These reforms MUST be scored as pro-life legislation and be funded more broadly than the President has promised. We are all for raising taxes on the wealthy, but these funds should be targeted to national defense, net interest payments  and debt reduction (starting with the Social Security Trust Fund). An asset value added tax (which is described below with our employer-paid subtraction VAT) should be the primary way the wealthy are taxed - along with surtaxes on middle ($85,000 - $200,000) and upper income salaries ($200,000+)..

Having served on the staff of a major abortion rights organization in the past, I can assure you that no such organization WOULD EVER OPPOSE HIGHER LIVING STANDARDS FOR WOMEN AND THEIR FAMILIES!

The chief obstacle for funding families is not the feminist movement. It is the so-called right to live movement who would rather women be penalized for having abortions than subsidized so that they are not necessary. Over the course of many decades, I have had conversations with conservative members of the pro-life community. When push comes to shove, they oppose the measures above because their objections to abortion are more about sexuality than the welfare of children.

In the pro-choice movement, many jump to the defend women’s bodies argument before first addressing the need for adequate family income. Doing so now will shame the leadership of the pro-life movement into supporting these provisions to Build Back Better.

Many in the pro-life movement already do. Catholic Charities USA, NETWORK and the Catholic Health Association all stand with working and poor women. They must be very publicly leveraged to get the U.S. Conference of Catholic Bishops behind them as well - and to have the bishops insist that these measures be considered must-pass legislation for the computation of pro-life voting records. 

Catholic members of Congress and the President should also lead on this effort. It is time to stop grandstanding on this issue. The movement got what it wanted in Dobbs (although to speak frankly, the states which banned abortion were not friendly to it to begin with). Eventually, some form of compromise between a national ban and nationally guaranteed rights must take place in Congress. This was always inevitable. For the present, however, the primary pro-life issue must be to assure that, now that abortion is now illegal in some places, it must be made rare by adequate support of families with children. 

Attachment: Tax Reform (Video links included)