Democrats Debate Child Tax Credit Extension

In particular, Sen. Joe Manchin’s insistence on a work requirement for the credit is complicating the discussions, Senate Democratic aides said. In the evenly divided Senate, Democrats need Mr. Manchin’s vote to extend the credit and advance the rest of their fiscal-policy agenda, including Medicare expansion, tax increases and a national paid-leave program. He has shown his willingness to use that leverage before.

The West Virginia Democrat has raised concerns that the no-strings attached benefit fuels opioid use, according to people familiar with his views. Some other Democrats and outside advocates have argued that the payments help prevent opioid use in hopes of changing his mind on work requirements. West Virginia has the highest rate of opioid-related overdoses in the country, according to government data.

“Don’t you think, if we’re going to help the children, that the people should make some effort?” he said on CNN earlier this month.

Until this year, the credit phased in with income, so the full amount didn’t go to millions of very-low-income households.

Democrats also are trying to fit the credit’s extension within the broader parameters of the party’s budgetary bill, while Mr. Manchin and others are insisting on making the legislation smaller. That could mean another expiration at the end of 2024 instead of the 2025 target that the Biden administration and House Democrats have set.

The expanded child tax credit is one of the most visible Democratic policies, because it now lands in tens of millions of bank accounts every month. The credit has existed—with bipartisan backing—since 1997, but this year’s coronavirus relief law expanded it significantly and added the monthly payment feature.

The credit is now worth up to $3,000 a year per child and up to $3,600 for children under age 6. In addition to the monthly payment, the credit is now fully refundable, which means that families can get the full benefit even if they have no income or owe no taxes.

The expanded part of the credit starts shrinking once income hits $75,000 for individuals and $150,000 for married couples. Higher-income families can still get the $2,000 per-child credit that was in place before this year, but that begins phasing out when income hits $200,000 for individuals and $400,000 for married couples.

The result is near-universal aid to parents, and economic studies over the past few months have shown reductions in food insecurity and material hardship for poor families.

Some people who don’t work receive the credit, but many of them are elderly, disabled, worked recently, are in school or are caring for very young children, according to the Center on Budget and Policy Priorities, a progressive group advocating for the credit expansion.

Mr. Manchin’s arguments echo those of Republicans who say Democrats have turned the credit into a welfare program.

“Addressing poverty successfully isn’t just sending them a check,” said Rep. Kevin Brady (R., Texas), the top Republican on the House Ways and Means Committee. “There is usually more going on in a family than that.”

Other Senate Democrats have asked whether the expanded credit should phase out more quickly for people at higher income levels.

“I just want to understand where the cutoffs are and whether they’re reasonable given the fact that we’re talking about a lot of money here,” said Sen. Angus King, a Maine independent who caucuses with Democrats. “It’s the upper end that I’m more concerned about.”

One potential trade-off Senate Democrats are weighing is to lower the income cutoffs for the $2,000 credit received by high-income households. That narrowed eligibility could save money to put toward the expanded credit for lower-income people, according to a Senate Democratic aide.

Depending how it is written, however, such a change could affect households making less than $400,000, colliding with President Biden’s pledge not to raise taxes on people under that income threshold.

“If members are concerned with the phaseout they should take it up with President Biden, who has said he doesn’t want to raise taxes on families making less than $400,000,” said Emma Mehrabi, the director of poverty policy at the Children’s Defense Fund.

One alternative would be a sharp cutoff at or near the $400,000 point rather than the current gradual phaseout.

Fitting the House’s tax credits into a $3.5 trillion plan—let alone a smaller one demanded by moderates—will be also challenging, Senate Democratic aides said.

The House Ways and Means Committee passed a $556 billion extension of the credit plus more than $230 billion for the earned-income tax credit and child-care tax credits. But senators had set aside just $385 billion for all of those credits combined. Even that was a target that was part of a $3.5 trillion framework, suggesting that the House plan might need to shrink significantly.

One simple way to make the credit appear smaller would be to set it to expire at the end of 2024 instead of 2025. That would decouple it from when Trump-era tax cuts are set to expire, instead of pulling everything into one large tax negotiation.

How long the child tax credit remains fully refundable is also an open question. The House bill makes it fully refundable even after the expansion expires. Doing so would lock in a part of the policy that future Republican Congresses might be less willing to extend.

Permanent full refundability appears relatively cheap now. That is because congressional budgetary rules assume the credit will drop to $1,000 per child in 2026, so paying that out looks like it doesn’t cost very much, especially compared with the larger credit in place now. But permanent refundability could still get taken out of the bill as it gets smaller, aides said.

Write to Richard Rubin at [email protected] and Andrew Duehren at [email protected]