The $ 1.9 billion US rescue plan, signed by President Joe Biden on Thursday, is aimed at pandemic-plagued economy through fiscal measures such as comprehensive unemployment assistance and direct stimulus controls. But the legislation also includes a relatively new measure that provides a form of guaranteed income to parents of children under 18, or what an expert calls “a baby step towards universal basic income”.
This is because the legal aid bill includes an overhaul of the child tax credit (CTC), a 24-year-old part of the country’s tax law, which today mainly benefits middle- and higher-income families. The U.S. bailout plan revisits the CTC by extending the $ 2,000 annual benefit to as much as $ 3,600 per child. It also includes more low-income households and divides the credit benefit by monthly cash payments.
These changes can have a huge impact on millions of families, especially low-income households and those whose earnings may fluctuate from month to month. More than 4 million children can be rescued from poverty, especially children from black or Latino families, according to the analysis by the Center for Budget and Policy Priorities.
The expanded CTC requires about $ 100 billion in additional federal spending. Columbia University researchers estimate that it will benefit more than $ 800 billion to society through better health for children and their long-term outcomes.
“This is a big deal,” said David Wessel, director of The Hutchins Center on Fiscal and Monetary Policy at The Brookings Institution. “This is one of the most important steps we have taken to lift children out of poverty. In many other countries, the government subsidizes families with children because it is the ultimate investment in the future.”
Wealthy countries such as Sweden and Ireland provide ‘child allowance’ – direct payments to families to help with the cost of raising children. With the refurbishment of the CTC, the US will join these countries – albeit temporarily – to provide ongoing direct assistance to families with children.
“It puts us in the same league of other Western capitalist democracies,” Wessel added. “It’s a baby step towards universal basic income, or guaranteed income, and it will be interesting to see how it works in practice and how it is seen by the public.”
Up to $ 3,600
The CTC has helped millions of families over the years, but its peculiar design has meant that it has sometimes bypassed the poorest families. Families that owe little or no income tax could only be eligible for up to $ 1400 per child, according to the Brookings Institution, rather than the $ 2000 benefit provided to wealthy families.
About 27 million children currently do not receive the full tax credit, said Kris Cox, deputy director of federal tax policy at the Center for Budget and Policy Priorities. “The current design of the child tax credit is upside down,” Cox added.
This has created a sudden impact, with lower-income families less likely than affluent families to benefit from the tax credit. In fact, about 40% of the tax credit went to families earning more than $ 100,000, while only 15% went to households with less than $ 30,000 in income, Brookings noted.
“We want the tax code to increase our low-income families, and they do not,” Joanna Ain, co-director of policy at Prosperity Now, a non-profit organization, focused on expanding economic opportunities for households with a low income.
Under the U.S. bailout plan, the CTC will be extended to $ 3,600 for each child under 6 and $ 3,000 for each child between 6 and 17 years old (the credit was previously excluded for children who were 17.) These amounts are also available to all low – income families, which indicates the shift of the previous limits for poor families.
The provision also includes income cuts for higher-income households, similar to the income thresholds of the stimulus checks. Single taxpayers earning up to $ 75,000 and married couples earning up to $ 150,000 will receive the full credit of $ 3,000 or $ 3,600 per child, but the payments will be reduced for people with incomes above the thresholds.
Families who earn too much to qualify for the extended tax credits can still claim the base of $ 2,000 credit for their children, provided their income is below the current thresholds of $ 200,000 for single taxpayers and $ 400,000 for married couples.
Monthly payments – for a while
Apart from the changes, the CTC will be paid out in part monthly, rather than being claimed once a year when people file their tax returns. In other words, a family with two children under the age of 6 would be eligible for $ 7,200 CTC payments, or $ 600 monthly payments.
But there is a problem: the monthly payments only last from July to December of this year, while the other half of the CTC is paid when people file their tax returns. In other words, households would receive six months’ monthly income, and then receive the rest of the CTC through their tax refund.
Nevertheless, receiving guaranteed monthly income for half of 2021 could be a game changer for many low-income families, experts say. Low-income households have been particularly hurt by the economic impact of the pandemic, in part because they are more likely to work in jobs that could not switch to remote work.
“We see so much variability in a person’s salary over the course of the year, especially low-income families,” Ain said. “The stability of having a lot of money every month will improve their quality of life.”
The extension of the child tax credit is only designed for one year, which means that the program can return to its previous form in 2022. But policymakers are hopeful that lawmakers can extend the expansion, especially if it is popular with voters. If the provision is not extended, millions of families could end the recurring assistance after the holidays.
To be sure, the government of Biden and some Congress Democrats have acknowledged their goal make the extension permanentAs part of their Build Back Better agenda, it indicates that they consider investing in children can bear fruit through a stronger economy in general.
“These things will not tend to disappear” once enacted, Wessel notes.
CBS News’s Sarah Ewall-Wice contributed to this report.