Fight child poverty

Democrats’ plan to fight child poverty: Monthly cash for kids

It’s designed to substantially reduce the number of children living in poverty by getting money into their parents' pockets quickly and steadily.

By BRIAN FALER

In the past year, the government has sent stimulus checks to half the country — twice.

Now, Democrats want to do something even more ambitious: Send cash each month to tens of millions of low-income people with children.

As part of their latest coronavirus stimulus plan, Democrats are drafting a proposal to expand and transform a long-standing tax credit for children — normally taken once a year at tax time — into a monthly payment. They aim to send $250 each month per child — $300 for kids under the age of six — in what would be the country’s first-ever child allowance.

It’s designed to substantially reduce the number of children living in poverty by getting money into their parents' pockets quickly and steadily. Democrats say if the government can send stimulus checks to 150 million people, then it can do this too.

“Families wait all year for tax filing season because their earned income and child tax credits cover critical needs like overdue bills or medical care,” Ron Wyden, the Senate’s top Democratic tax writer said in a statement. “Making at least the child tax credit payable in advance would help lessen the constant financial pressure on these families.”

But the proposal is still in its early stages, and it's likely to be much more difficult to implement than cutting stimulus checks. Democrats still need to confer with the Treasury Department about how it could work, and it’s unclear how quickly the department might be able to set up such a program.

It would also be expensive, projected to cost more than $100 billion annually.

Some Republicans are likely to support the plan, a prominent conservative tax expert predicted, though it could be a divisive issue for GOP lawmakers.

The proposal hasn’t gotten a lot of notice, but it’s one of the biggest changes to the tax code now being pushed by Democrats. Lawmakers have been advocating the idea for years, but with President Joe Biden endorsing the idea and Democratic control of Congress and the White House for the first time in a decade, many now see their chance to make it happen.

Democrats say many would be better off if they could take the credit in monthly installments because that would create a reliable stream of income that would help them with unexpected expenses throughout the year.

They also want a big increase in how much low earners can get out of the credit. It currently maxes out at $2,000 per child. But the poor tend to get a fraction of that because the provision — designed to encourage work — is pegged to how much people make, up to certain limits. In 2019, those earning between $10,000 and $20,000 received an average of $850 from the Child Tax Credit while those earning between $75,000 and $100,000 typically received more than three times that.

Democrats would increase the maximum credit to $3,000 per child, with an extra $600 for kids under the age of six. They also want to scrap the work requirement so people could receive the entire break even if they have no income.

Their installment plan would be optional because some might prefer to receive a lump sum at tax time.

And while the poor are the focus of the initiative, it would be open to others as well — though monthly checks would make less sense for higher-income people. For them, the Child Tax Credit — like any other break — reduces their tax bill. If they opted to instead receive monthly checks, they’d have to pay more at tax time.

Though the IRS has never done something like this before, Democrats point to the recent stimulus checks, also known as Economic Impact Payments, as evidence they could pull it off.

“The fact that the IRS was able to do it so rapidly for so many people with EIPs heartens us as to their ability to be able to do this with regularity for this group of taxpayers,” said a congressional aide involved in developing the plan.

Over the past year, the IRS has sent checks twice to roughly half the population, including millions of hard-to-reach people whose incomes are so low they are excused from filing tax returns and have little interaction with the IRS. Combined with the usual annual tax refunds, the IRS has distributed nearly three-quarters of a trillion dollars in the past year.

And the agency is getting better at it. While it took the IRS months to send out the first round of checks, the agency says it sent 140 million payments within two days of the last coronavirus relief package being signed into law.

Democrats believe the infrastructure developed for those payments can be repurposed for monthly payments. They note, for example, the IRS now has a vast trove of people’s direct deposit information.

But sending monthly checks is likely to be trickier because people’s financial and personal circumstances can change throughout the year, which can affect how much they should get or if they are even eligible.

People’s incomes fluctuate, for example. They have babies, which qualifies them for bigger payments; and their children grow into adults, which disqualifies them. The question of which person gets to claim the credit can be complicated if a couple gets divorced, for example.

There’s also the issue of what happens if someone ends up receiving too much — lawmakers have tended to be squeamish about asking for overpayments to be returned. With the recent stimulus payments, Congress allowed recipients to keep the difference if they received more than they should have.

It would also be an entirely new mission for the IRS, which Democrats have long complained is already stretched too thinly.

Perhaps the closest analogy to what lawmakers are considering is the advance insurance subsidies provided under the Affordable Care Act. HHS's implementation of that program, initially, was rocky.

Republicans will be divided over the proposal, predicts Ryan Ellis, former tax policy director of Grover Norquist’s Americans for Tax Reform.

Some have been enthusiastic supporters of the credit and have wondered themselves if there could be a way people could benefit from it throughout the year. But others, he says, will see the plan as little more than a welfare spending program in the guise of a tax provision.

“There will be a split in the party,” he said. “Some Republicans will definitely oppose it.”

In the past, lawmakers have tended to skate over administrative challenges of actually making such a plan work, saying they would leave it up to Treasury to figure out. But now Democrats say they are trying to sort through the details.

They envision Treasury setting up an online tool where recipients could report changes in their circumstances during the year, the aide said — sort of like one the IRS developed to send stimulus checks to nonfilers. They also intend to require people to pay back overpayments when they do their taxes, though the details are fuzzy.

Democrats say they intend to give the IRS a lot more money to set up the program. But they still need to confer with Treasury about logistics and, with the change in administrations, that department is still getting staffed up.

“We’ll need to work out distribution specifics with the IRS,” said Sen. Sherrod Brown (D-Ohio). “But I’ve made that clear that I want to see Congress make this investment in kids and workers, who need help to see through the pandemic.”