Democrats propose expansion to Child Tax Credit. When could the plan be approved?

The Democrats’ proposal to increase the social safety net through their $3.5 trillion reconciliation budget bill is taking shape. The House Ways and Means Committee which is responsible for writing up the tax provisions released a 645-page portion of their proposal.

Included in the newly released section is a four-year extension of the changes to the Child Tax Credit for the 2021 fiscal year. As well, more children will now be eligible to receive the monthly advance payments with the requirement for a child to have a Social Security Number dropped.

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What changes are proposed for the Child Tax Credit in the extension?

The proposal by the House Ways and Means Committee will extend the changes made to the Child Tax Credit in the American Rescue Plan until 2025. The monthly advance payments per child of $250 for those six to seventeen and $300 for kids under six would continue over the next four years. However, the total credit of $3,000 and $3,600 respectively would be indexed to take into account inflation in the coming years.

More families were given access to the Child Tax Credit under the changes for 2021 when the earnings floor of $2,500 was removed. The proposal released Friday will expand access even further, children without a Social Security Number will now be eligible for the advance payments, allowing parents that file their taxes using an ITIN, an Individual Taxpayer Identification Number used by resident and non-resident aliens to file taxes, to be able to claim the tax credit.

In order to continue receiving the payments in the coming years families will be required to reaffirm their eligibility each year. The IRS will maintain the online portal it created for parents to update their information as their financial or family situation changes. However, children may still be automatically enrolled for the advance payments based on information obtained from government programs or birth records.

What will happen to the Child Tax Credit after 2025

Democrats wanted to make the changes to the Child Tax Credit for 2021 permanent. However, due to resistance in the party to the high price tag of the $3.5 trillion reconciliation bill, not to mention such an extension would have chewed up nearly a third of the proposed amount Democrats have authorized for the spending package, proponents had to settle for a more limited extension. The hope is that when the next expiration date comes, the popularity of the program will force lawmakers at that time to extend the changes once again.

If Congress doesn’t extend the changes again after 2025 the Child Tax Credit will drop back to the $1,000 credit amount that taxpayers could claim prior to the changes made in 2017 under the Tax Cut and Jobs Act (TCJA). But, families that file taxes with an ITIN will be able to claim the reduced Child Tax Credit after 2025 with the SSN requirement for children established in the TCJA repealed should the spending proposal pass.

When will Congress approve the Child Tax Credit expansion?

The fate of the Child Tax Credit changes is tied to the overall social spending package Democrats hope to push through Congress without Republican support. GOP lawmakers have balked at the cost of the proposal and say that it will further increase inflation which has been above normal as the US comes out of the economic crisis created by the covid-19 pandemic. Economists and officials at the Fed say that the inflation being experienced is temporary, due to disruptions from the pandemic causing bottlenecks in the supply chain along with pent-up demand.

However, it’s not just Republican lawmakers that are using inflation fears as a reason not to support the spending package. Senator Joe Manchin, a Democrat from West Virginia, has also expressed concern and called for a pause on his party’s plans to move forward with the reconciliation bill. With the Senate split 50-50, Democrats will need every vote in their caucus to get the spending package through the upper chamber.

The clock is ticking for Democrats

The Democrats proposal still isn’t complete with the House Ways and Means Committee releasing its part piecemeal, saving the most controversial bits for last. They still need to say what taxes will be raised in order to pay for the spending package. This could be a further point of contention among Democrats.

A series of deadlines are coming at the end of September, but most crucially 27 September when it has been agreed the $1 trillion infrastructure bill will get a vote in the lower chamber, it has already been approved by the Senate. Progressives in the House have said that they will tank that spending package if the larger proposal isn’t passed by the Senate as is when it arrives to the upper chamber. Depending on where negotiations go between factions in the Democratic Party and the White House will signal whether the social spending package and the extension of the 2021 Child Tax Credit come to fruition.