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CHILD TAX CREDIT

Will Child Tax Credit eligibility change for payments in 2022?

If the reconciliation bill is not passed, more than twenty-four million children will be ineligible to receive the Child Tax Credit in 2022.

Update:
If the reconciliation bill is not passed, more than twenty-four million children will be ineligible to receive the Child Tax Credit in 2022.
JONATHAN ERNSTREUTERS

Late last week, the House of Representatives approved the $1.2 trillion Bipartisan Infrastructure bill. The package had been approved in the Senate in August but was being held up by progressives who used their leverage in an attempt to ensure the reconciliation bill would also be brought up for a vote. The infrastructure bill removed much of the social spending President Biden had proposed this spring, including the extension of the current structure of the child tax credit (CTC).

The measures included in the reconciliation bill form part of President Biden's Build Back Better agenda and were campaigned on by Democrats down the ballot in 2020. After negotiations with more conservative members of the Democratic party, the bill's price tag has been cut from $3.5 trillion to $1.75 trillion. To cut costs, many measures were taken out of the legislation.

What was cut from the reconcililation bill?

  • Lowering the Medicare elgiiblity age from sixty-five to sixty
  • Medicare expansion to cover dental and vision services
  • Child Tax Credit extension from five years to just one
  • Federal paid family leave program
  • Two years of free community college

A deal with Senators Joe Manchin of West Virginia (D-WV) was announced by the White House on 1 November which said that the Senator was "prepared to support a Build Back Better plan that combats inflation, is fiscally responsible, and will create jobs." However, shortly after Sen. Manchin hosted a press conference where he said he was not convinced and was interested in containing negotiations to create a "sensible reconciliation package that strengthens our nation.”

Since then, Sen. Manchin and Sen. Sinema have said they will not vote on the reconciliation bill until the Congressional Budget Office (CBO) provides a report on the possible impacts on the national debt. However, Sen. Manchin and others did not seem concerned by CBO report which highlighted that the infrastructure package would add more than $256 billion dollars to the deficit over the next ten years.

Outlook for the Child Tax Credit in 2022

Should the reconciliation bill be passed, the CTC with its current eligibility requirements would be extended one more year. Under the American Rescue Plan, changes to the structure of the credit were made which expanded eligibility to more than twenty-four million children.

Under the American Rescue Plan, the income requirements were removed and the value of the credit was increased to $3600 for children under six and $3000 for those between six and seventeen. Additionally, the way the credit was distributed was changed and provided families the chance to receive monthly payments between July and December. Half the value of the credit was distributed during the last six months of 2021 and the remaining value will be claimed when families file their taxes.

Initially, some Democrats tried to include funding to extend the CTC five years, but more conservative party members rejected this proposal.

How are families spending payments for the child tax credit?

  • Build emergency savings (75%)
  •  Routine expenses (67%)
  • Essential items for children (58%)
  • Purchasing more or better food (49%)
  • Start or grow a college fund (42%)
  • Child activities (42%)
  • Moving or making home improvements (32%)
  • Health care expenses (29%)
  • Child care expenses (26%)
  • Spending more time with children (20%)
  • Purchasing gifts or entertainment (20%).

Source: Brookings, 2021

Poverty experts have estimated that the CTC could cut child poverty in half this year. However, should the structure return to its older structure, many families with children could fall back into poverty.

The debate over the deficit

Now that progressives have lost their legislative leverage some are questioning whether the reconciliation bill will ever make it to the floor of either chamber for a vote. The CBO is expected to release its analysis of the bill this month. When the report is released, leaders like Sen. Manchin will have to decide whether they will support the bill or not. After the loss of the governor's race in Virginia last week, many Democrats are worried that not making good on their campaign commitments could weaken the party's electoral chances in the 2022 Mid-Term elections. 

The Center for a Responsible Federal Budget (CRFB) found that the package could add $200 billion to the deficit, less than what the bipartisan package will contribute. The CRFB also noted that Democrats could close this revenue shortfall by eliminating the extension of the SALT deduction from the bill.