Lost amid the progressive anger that student loans aren’t going to be forgiven via presidential order and that a minimum wage increase will have to wait, are transformative tax policies that could help lift an entire generation out of poverty.
President Joe Biden signed the American Rescue Plan on Thursday. While the headline is the $1,400 stimulus payments that will arrive in bank accounts soon, unemployment and small business bailouts, the bill also expands and enhances the existing child tax credit so it is more effective, more equitable and well, simply, more. The idea has been pushed by Colorado’s Sen. Michael Bennet and Sen. Sherrod Brown of Ohio for years now. A version of it was included in the Republican’s 2017 Tax Cuts and Jobs Act as the $2,000 child tax credit.
Bennet told me in an interview Thursday that the idea sprang from town halls where he heard from middle-class families that they couldn’t afford to save for the future and provide their children with some combination of housing, health care, or higher education. It was a general sense, Bennet said, that “we can’t save and we think our kids are going to live a more diminished life than we did, and we are already living a harder life than our parents did.”
And for those in poverty, working multiple jobs to earn a living wage, it was a sense of being trapped in an unbreakable cycle. The kind of poverty where the hard decisions aren’t between health care and college but between heat on a cold winter’s day and a gallon of milk for the kids. Parents aren’t just saying no to treats at the grocery store but telling a hungry four-year-old there’s not another helping of chicken to be had.
On the laundry list of economic needs in this country – targeted payments to low-income families with children tops my list. Kids who grow up healthy and happy are more likely to succeed in school and to pave a path for themselves out of poverty. In December, according to a study by researchers at the Center on Poverty and Social Policy at Columbia University, approximately 15% of U.S. kids under the age of 18 were living in poverty — for Black and Hispanic children the number is closer to 24%. The researchers estimate that the American Rescue Plan, including the child tax credit, will reduce that number to under 6% (and around 9% for Black and Hispanic children)
Bennet says the cost of the tax credit will be about $100 billion a year, and he said the final version will likely include ways to pay for some of the increased annual costs. I told Bennet that I worry whether the current tax code is sustainable. I worry there will be an austerity reckoning in America’s future or the inflation we feel in housing will creep into other basic needs. He worries too, but he said the rates of childhood poverty in America are completely unacceptable.
In the meantime, I advise folks able to save for retirement to pay taxes on their savings now in a Roth IRA rather than pay the taxes of the future with a 401K. Bet on taxes being lowest now under Trump’s tax cuts and the economic rescue plan than in the future.
For middle-class families, the child tax credit could mean money in a Roth, money for a 529 savings plan for college, or a fund for a down payment and closing costs on a house. Skyrocketing housing costs make locking in mortgage payments crucial for long-term financial success in this country.
The genius of Bennet’s plan is that it takes the existing tax credit and increases it to $3,000 ($3,600 for children under the age of 6) and allocates the credit’s value monthly. Parents will begin receiving $250 ($300 for younger kids) payments every month. That will make the value go further. It could pay for pre-school or child care or groceries or even health insurance premiums. While the existing tax credit cannot give a person more than they have paid in taxes in any given year, Bennet’s tax credit is fully refundable, meaning it’s possible for a family that makes too little to pay taxes to still get the full monthly benefit.
Let me pause here and say I’m uncomfortable with the income threshold. A married couple filing their taxes jointly with an income of $150,000 a year or less is eligible to receive the enhanced tax credit (those making more, up to $400,000 as a couple, will still get the $2,000 per child credit). That puts my family of four within the threshold for getting the benefit. We do not need $550 a month from the federal government. Thanks to Trump’s tax changes our effective federal income tax rate fell below 2%. This increased tax credit will likely mean we pay nothing, or maybe even have a net benefit, from the federal income tax code. I’d advocate for the threshold to be lowered.
However, it is not hard for me to imagine a family of four with the same income as mine or slightly lower struggling to tread water. Perhaps they weren’t able to buy a modest home seven years ago before the housing market in Denver went insane. Add in student loans, a car payment, and childcare because it’s taking two parents working full-time to bring in the income that we get from one parent working, and suddenly my stable household would be at risk of dipping into savings to get by, another luxury that many families aren’t fortunate enough to have built at this point in their lives.
But I do feel strongly that if it’s made permanent, the payments should at least be made graduated based on income. I’d feel less guilty if I was getting half or even a third of what those in poverty were receiving and less bitter if those making almost a half-million dollars a year were getting half or a third of that. Trying to add restrictions to ensure that only families truly in need get the payments would create a bureaucracy and Bennet has a point that part of the beauty of this tax credit is it will lift children out of poverty without the cumbersome problems in our current welfare system.
America’s middle class is at risk of disappearing. If we can’t solve the unsustainable costs of housing, health care and higher education, perhaps we can set the next generation up to be able to afford them.
Megan Schrader is the editor of The Denver Post opinion pages. She can be reached at [email protected]
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