Child Support for States and Tribes

WM Welfare & Oversight: Strengthening the Child Support Enforcement Program for States and Tribes , November 29, 2023

The question of child support magnifies the issue that causes most divorces, the financial stress faced by most families. Rather than using governmental hard power to force such support on largely poor families, use soft power to provide higher incomes to both existing and broken families, ending the cycle of poverty. 

In May and October, we discussed raising minimum wages, reforming TANF and increasing the child tax credit. We will continue our comments to the last point. 

An adequate and fully refundable child tax credit ends the need for child support enforcement, Supplemental Aid to Needy Families, dependent care benefits under Social Security survivors and disabled benefits programs, thus securing the program’s long term health, and the paperwork intensive Earned Income Tax Credit.

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. 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. This had the “stink of welfare” that even some Democratic Senators objected to, which led to its discontinuance. 

I submit that, over the long-term, it would be more acceptable to distribute them either through other government subsidies, such as Unemployment Insurance, Disability Insurance, or a training stipend OR through 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. 

Tax reform can be used to facilitate this 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.