He Stimulus bill of $ 1.9 trillion it aims to prop up the US economy affected by a pandemic through proven and real fiscal measures such as extended unemployment benefits and direct stimulus controls. But the legislation also includes a relatively new measure that offers a form of guaranteed income to parents of children under 18, or what an expert calls “a step toward universal basic income.”
This is because the relief bill includes a review of the Children’s Tax Credit (CTC), a 24-year-old part of the country’s tax legislation that today primarily benefits middle- and high-income families. The American Rescue Plan revises the CTC by extending the benefit from $ 2,000 a year to $ 3,600 per child. It also includes more low-income households and clears the benefit of credit through monthly cash payments.
These changes could have a significant impact on millions of households, especially low-income households and those whose incomes may fluctuate from month to month. According to the analysis of the Center for Budgets and Political Priorities, more than 4 million children could be lifted out of poverty, especially children from Latino or black families.
The expanded CTC will require about $ 100 billion in additional federal spending. Researchers at Columbia University estimate that it will generate more than $ 800 billion in benefits for society through better health for children and their long-term outcomes.
“It’s a big problem,” said David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy at the Brookings Institution. “It is one of the most significant steps we have taken to lift children out of poverty. In many other countries, the government subsidizes families with children because they are the ultimate investment in the future.”
He House approved Thursday the $ 1.9 trillion coronavirus relief package approved by the Senate. The aid measure could receive the signature of President Joe Biden in the coming days.
Wealthy countries like Sweden and Ireland provide “child allowances” – direct payments to families to help them cost child rearing. With the revision of the CTC, the U.S. will join these countries, albeit temporarily, to provide recurring direct assistance to families with children.
“It puts us in the same league as other Western capitalist democracies,” Wessel added. “It’s a step towards universal basic income or guaranteed income, and it will be interesting to see how it works in practice and how the public perceives it.”
Up to $ 3,600
The CTC has helped millions of families over the years, but its peculiar design meant that it sometimes surpassed the poorest families. Families that owed little or no income tax were only eligible up to $ 1,400 per child, rather than the $ 2,000 benefit offered to wealthier families, according to the Brookings Institution.
Currently, about 27 million children do not receive the full tax credit, said Kris Cox, deputy director of Federal Tax Policy at the Center for Budgets and Priority Policies. “The current design of the children’s tax credit is upside down,” Cox added.
This created a messy impact, with lower-income families less likely than wealthier families to benefit from the tax credit. In fact, about 40 percent of the tax credit went to families earning more than $ 100,000, while only 15 percent went to households with incomes below $ 30,000, Brookings noted.
“We want the tax code to increase our low-income families and it didn’t,” said Joanna Ain, associate policy director at Prosperity Now, a nonprofit organization focused on expanding economic opportunities for low-income households.
Under the American Rescue Plan, the CTC would be extended to $ 3,600 for each child under 6 years of age and $ 3,000 for each child between the ages of 6 and 17 (the credit previously excluded children under 17). These amounts would also be available to all low-income families, marking a change from their previous limits for poor families.
The provision also includes income limits for higher-income families, similar to the income thresholds for stimulus controls. Single taxpayers earning up to $ 75,000 and married couples earning up to $ 150,000 will receive the total credit of $ 3,000 or $ 3,600 per child, but payments would be reduced for people with incomes above these thresholds.
Families earning too much to qualify for extended tax credits could claim the $ 2,000 base credit for their children, as long as their income is below the current $ 200,000 threshold for single taxpayers and $ 400,000 for married couples. .
Monthly payments: for a while
Aside from these changes, the CTC would be partially paid monthly, instead of claiming it once a year when people file their tax return. In other words, a family with two children under the age of 6 would be eligible for $ 7,200 in CTC payments or $ 600 in monthly payments.
But there is a problem: monthly payments would only run from July to December this year, and the other half of the CTC is paid when people file their tax return. In other words, households would receive six months of monthly income and then receive the rest of the CTC through their tax refund.
Still, receiving guaranteed monthly income during mid-2021 could change the game for many low-income families, experts say. Low-income households have been particularly affected by the economic impact of the pandemic, in part because they are more likely to work in jobs than he could not move on to remote work.
“We see so much volatility in a person’s salary throughout the year, especially the payrolls of low-income families,” Ain said. “The stability of having an amount of money coming in every month will improve your quality of life.”
The expansion of the children’s tax credit is only designed for one year, which means the program may return to its former form in 2022. But experts hope lawmakers can expand the expansion, especially if it is popular among the voters.
“These things don’t tend to go away” once enacted, Wessel noted.