A wave of media laments greeted the Census Bureau’s recent report that child poverty more than doubled in 2022 because Congress failed to extend the covid-related expansion of the child tax credit. The program was a godsend to poor families, cutting child poverty nearly in half, and deserved to live on, the conventional wisdom said.
The conventional wisdom is wrong.
The expanded child tax credit, enacted in early 2021 as part of President Biden’s American Rescue Plan, was a perversely inefficient way to fight poverty. It made about 96 percent of all American families with children — meaning children of affluent as well as of nonworking parents — eligible for grants of as much as $3,600 each, based on the children’s age and parents’ income. Of the $93 billion in payments in 2021, $40 billion went to families with annual incomes of more than $60,000. And, because of complicated and easily abused rules, annual improper payments could be about 16 percent of the total — or almost $15 billion.
It was opposition from Sen. Joe Manchin III (D-W.Va.) that, in an evenly divided Senate, killed the Biden child tax credit. Manchin refused to vote for its extension unless eligibility was capped at family incomes below $60,000 and “firm” work requirements were added. The failure of his fellow Democrats to accept his compromise is baffling because it left millions of poor and low-income families much worse off. It suggests that the expanded credit was the latest in a long line of politically driven, and fiscally dubious, middle-class (and higher-income) tax cuts — Biden called it a “tax break” — that are not paid for by tax increases or savings elsewhere. Eventually, our children will have to pay the money back, plus interest, through higher taxes or inflation.