Another One Bites the Dust: The Failure to Expand the Federal Child Tax Credit
Abby Ling
On August 1, 2024, months after the House decision to advance a tax package that would re-expand the federal Child Tax Credit (CTC), the tax proposal failed to pass the Senate.
This decision may significantly impact low-income families as economic uncertainty grows and poverty rates remain high. Without an expansion, the CTC’s current value is also at risk of being cut in half after next year, further exacerbating child poverty and financial instability under a weaker tax system. However, the benefits of past expansions, like those from the 2021 American Rescue Plan (ARPA), continue to encourage policymakers and advocates to push for tax legislation that benefits all American families and boosts economic prosperity.
Action in the House
In January, the House reached a 357-70 vote, effectively advancing a nearly $80 billion bipartisan package to re-expand the federal CTC for lower-income families and restore business tax cuts. The proposed bill was more modest than the pandemic-era enhancement with a value of up to $2,000 by 20251. However, when fully implemented the strengthened tax credit was anticipated to lift half a million or more children out of poverty, according to the Center on Budget and Policy Priorities.
Source: Kelly Phillips Erb, Forbes
Senate Stalemate and Defeat
Months after the House decision, the package stalled in the Senate, dashing hopes of reaching a vote before Tax Day. The Internal Revenue Service (IRS) shared that the agency would ensure the tax credit would be retroactively available to eligible families if passed after the filing deadline. To move it forward, Sen. Ron Wyden (D-OR) offered to remove a provision in the tax package in exchange for a higher refund return. However, the suggested change was rejected by Sen. Mike Crapo (R-ID), the top Republican on the Finance Committee and the Republican’s lead negotiator.
The impasse persisted into the summer until legislators convened before the August recess. The Senate voted on the package, with 48 in favor and 44 opposed, missing the 60 votes needed to progress the bill.
Source: Kelly Phillips Erb, Forbes
The deadline for Congress to act fast looms as the Tax Cuts and Job Acts (TCJA) enacted in 2017 under former President Donald Trump nears expiration. The temporary legislation expanded the federal CTC to its current maximum of $2,000 per child under 17 years old and increased the maximum income threshold. However, the conditions are set to expire by 2025, reverting the child-focused tax credit back to $1,000.
States See Success
The shortcomings in federal legislation have motivated states to strengthen tax policies within their localities. Colorado, Illinois, New York, Utah, and Washington D.C. are among the states that have made strides to expand their refundable tax credits since the start of the 2024 legislative season.
In early June, Colorado Governor Jared Polis (D) passed House Bill 24-1311, which increased the state EITC value to 50% of the federal rate and implemented a new state tax credit – the Family Affordability Tax Credit – that boosts the existing state CTC and provides families with children up to $3,200 in additional credits.
In the same month, Illinois Governor J.B. Pritzker (D) enacted a new state CTC for EITC-qualifying families with children 12 and younger as part of a $53.1 billion 2025 Fiscal Year budget. The tax credit is funded by a $200 million tax hike on sportsbooks and video gambling.
Utah lawmakers expanded its state CTC to children 4 years old and younger. Formerly, the tax credit was cut off once a child was older than three.
The D.C. Council progressed a new, fully refundable local CTC valued up to $420 per child under 6 years old as part of a unanimously approved city budget.
Through August, New York Governor Kathy Hochul (D) announced sending up to $330 per child to families who received at least $100 from the 2023 Empire State Child Credit. The additional funds are anticipated to help one million New York families.
What’s Next
In the wake of the failed bipartisan package, the Democratic and Republican presidential parties are evaluating potential efforts to expand the federal CTC. Senator JD Vance (R-OH), the GOP running mate to former President Donald Trump, emphasized his intentions to increase the federal CTC value to $5,000 per eligible child, equating to 150% more than the tax credit’s current rate. He has also hinted at removing income thresholds that phase out single filers earning over $200,000 and joint filers earning over $400,000.
Days following this announcement, Democratic presidential candidate and current Vice President Kamala Harris unveiled her plan to reinstate the pandemic-era expanded federal CTC and provide families with newborns up to $6,000 in tax relief. Vice President Harris’s plan is anticipated to have a 10-year cost of $1.6 trillion compared to Sen. Vance’s anticipated $2 trillion to $3 trillion price tag.
These proposals to expand the federal CTC showcase major bipartisan support for the effectively proven tax credit. While the recent setback in the Senate proved discouraging for several policymakers, the motivation to gain widespread financial stability for families and children, among advocates and communities, lives on.
Footnotes
1 The proposed expansion also included an adjustment for inflation but made no changes to the minimum income required to qualify for the tax credit.