Let it be fiscally sober, pro-family, pro–American Dream, pro-work, pro–play-by-the-rules.
Let it be fiscally sober, pro-family, pro–American Dream, pro-work, pro–play-by-the-rules.
T o hear them tell the tale, you’d think Joe Biden and congressional Democrats invented the child tax credit in 2021 and congressional Republicans want to take it away. In fact, the opposite is true. For 30 years, Republicans first created then proudly expanded the child tax credit. In 2021, Joe Biden and the Democrats hijacked the credit and tried to use it as a skin suit to sneak in a universal basic income (UBI), perhaps inspired by Biden’s presidential primary opponent, Andrew Yang. It’s now up to Republicans to reclaim the child tax credit as their own, reasserting paternity and responsibly updating it for modern conditions.
The child tax credit was part of the 1994 Contract with America, the blueprint on which Newt Gingrich and House Republicans ran. The book version of the Contract explains the credit thus: “[It] recognizes families for what they are — the basic building block of society. Renewing the American Dream is our goal, and renewing that dream starts at home, with the family. To help families reach their American Dream, our Contract calls for [a] $500 per-child tax credit, to make raising children a little more affordable.” The Contract with America was signed by all but two of the Republican members of the House and every single nonincumbent Republican running for the House in 1994.
The child tax credit was one of many bills passed by the new majority — Republicans having taken the House for the first time in 40 years. H.R. 1215, the American Dream Restoration Act, passed 246–188 on April 5, 1995.
The child tax credit finally became law in 1997 when a Republican Congress passed the $500 version, and President Bill Clinton signed it. President George W. Bush and a Republican Congress doubled the child tax credit to $1,000 over a period from 2001 to 2003 in what came to be known as the “Bush tax cuts.” The $1,000 per child credit was extended and eventually made permanent by a Republican Congress and President Barack Obama. In 2017, a Republican Congress passed the Tax Cuts and Jobs Act (TCJA), which doubled the child tax credit to $2,000 and was signed into law by President Donald Trump.
The pattern is clear: The child tax credit is a Republican tax policy passed into law, extended, and expanded by Republican congressional majorities. In its modern form, it is a combination of pro-family tax policy and a replacement for the now-defunct dependent exemption.
In 2021, President Biden and the congressional Democratic majority hijacked the child tax credit and made it something warped and different. First, they supersized it to $3,600 for younger children ($3,000 for school-age kids). This might have been fine in isolation, but it happened amidst a tsunami of fiscal recklessness. Making matters worse, the Biden–Pelosi–Schumer version of the credit was both fully refundable (meaning you get it even if your income-tax liability has been zeroed out), and advanced (meaning you get an IRS direct deposit for a piece of it every month, ahead of tax filing). All work requirements were dropped. Families could receive the credit even if the parents are in the country illegally. Clearly, this was a backdoor toward the creation of a universal basic income, the issue campaigned on by Andrew Yang. This was not a serious proposal, as evidenced by the fact that Biden and the Democratic congressional majority had three cracks at making it permanent in budget reconciliation and didn’t do so.
Thankfully, the 2021 credit ended and was replaced by the TCJA child tax credit Biden inherited. In opposing this one-year experiment in the child tax credit, Republicans were portrayed by the press in the usual “Republicans pounce” stories. Unfortunately, Republicans played into the narrative by staying on the defense, rather than putting forward a Republican vision of what the child tax credit should look like today. It didn’t help that a lot of proposals to expand the credit resembled the unworkable 2021 credit, not the continuing historical one.
It’s important for Republicans to first define what the child tax credit is not. It is not a universal basic income for families with kids. It is not a way to deliver benefits to illegal aliens. It is not there to support able-bodied joblessness. To these ends, a 2023 Republican child-tax-credit plan should be modest in size, should keep or even strengthen work requirements for able-bodied parents, and should not be offered to children or parents without Social Security numbers (that is to say, the credit should only be available to citizens or permanent residents). It should not be paid in advance, via monthly checks from the IRS. Putting these boundaries in place are crucial for most Republicans to get on board with a child tax credit after years of gaslighting by Democrats.
The $2,000 child tax credit of TCJA would be worth $2,500 today after the Biden-era bout of inflation. Republicans should make parents whole by catching up the child tax credit to the inflation of the past few years and then permanently indexing the credit to inflation going forward. The refundable portion of the credit is already indexed to inflation — and should continue apace. Permanence is important to give certainty to families as they plan around taxes and to protect the child tax credit from the ravages of inflation (as income-tax brackets and the standard deduction already are).
Republicans should be fiscally responsible about a child-tax-credit expansion. Besides tightening the work and citizenship requirements, a permanent and inflation-proof child tax credit could be paid for by lowering the income eligibility for it. Under current law, a married couple begins to lose eligibility for the child tax credit at $400,000 of adjusted gross income. If they have two kids, the child tax credit for a family of four is not zeroed out until income reaches $480,000. That’s too high. A more generous credit should be targeted to working families with kids and not the affluent. Republicans should advocate lowering the phaseout starting point for families from $400,000 to $300,000, or even lower. This would still make the child tax credit available to well over 90 percent of families with children.
Child-tax-credit reform that builds upon the nearly three-decade legacy of responsible Republican tax policy is once again ripe for debate. Other tax policies, including the prevention of IRS snooping on your Venmo and making you slowly deduct your business purchases, have been held up in recent years due to Democratic insistence on their UBI/child tax credit as the only policy on the table. It’s high time that today’s generation of Republican congressional leaders put a fiscally sober, pro-family, pro–American Dream, pro-work, pro–play-by-the-rules child tax credit out there for the American people.