December 13, 2021

Child tax credit expiration adds pressure for Democrats

Democrats are feeling an increased sense of urgency to quickly get President Biden’s social spending and climate package across the finish line due to the pending expiration of the expanded child tax credit at the end of the year.

Absent congressional action, the IRS will make its last monthly child tax credit payment on Dec. 15. Democrats see the monthly payments as critical to reducing child poverty and want to prevent a lapse.

The key obstacle is Sen. Joe Manchin (D-W.Va.), who has expressed a reluctance to passing the social spending package this year. Despite Manchin’s hesitancy, key Democrats are insistent that the expanded child tax credit won’t expire.

“We are not going to have a lapse in payments. That’s too important,” said Sen. Sherrod Brown (D-Ohio).

The $1.9 trillion coronavirus relief law that Biden enacted in March expanded the child tax credit for 2021. The expansion included an increase in the credit amount and monthly advance payments of the credit and allowed the lowest-income families to be eligible for the full credit amount.

The Treasury Department and IRS in July started sending out monthly advance child tax credit payments of up to $300 for each child under age 6 and up to $250 for each child ages 6 to 17. The monthly payments, which allow families to receive funds in installments rather than in a lump sum when they file their tax returns, are currently set to end this month.

The social spending package includes a one-year extension of the expanded credit. Senate Finance Committee Chairman Ron Wyden (D-Ore.) told reporters Thursday that the IRS has indicated that Congress should pass the social spending package by Dec. 28 in order to ensure that monthly payments are made on Jan. 15.

“We've got to work very hard and move quickly because of some of the logistical challenges that the IRS has in terms of the process, and I'm committed to getting it done,” he said. “I'm pulling out all the stops to make sure that there is no interruption.”

Democrats view the monthly child tax credit payments as a key way to help low- and middle-income families afford household expenses.

“Our view is that the child tax credit is a really important, basic support for families and that we should extend it,” National Economic Council Director Brian Deese said during Thursday’s White House press briefing. “And we should extend it because it's doing what we hoped it would do, which is dramatically reduce child poverty in America, dramatically reduce poverty in America, and give families some breathing room in a very strong but uncertain recovery.” 

Additionally, a lapse in the monthly payments could pose a political risk for Democrats ahead of the midterm elections.

Ethan Winter, lead pollster for the Fighting Chance for Families coalition focused on making the expanded child tax credit permanent, said that continuing to offer concrete benefits such as the child tax credit is one of the best ways for Democrats to counter Republican messaging on cultural issues targeted to parents, such as on critical race theory.

“If you allow the benefits to lapse, I do think this would present a political liability for the Democratic Party,” Winter said.

The House passed its version of the social spending bill last month. Senate Majority Leader Charles Schumer (D-N.Y.) has repeatedly said he wants the Senate to pass a version of the bill by Christmas.

Senate Democrats are using an arcane process known as budget reconciliation to pass the spending package. The process, which Democrats used earlier this year to pass the coronavirus relief law, will allow the party to pass the package with a simple majority in the upper chamber, bypassing a likely Republican filibuster. Still, every Senate Democrat will need to back the legislation for it to pass because the chamber is evenly divided between the two parties.

Getting all Senate Democrats to fall in line behind the plan has been an arduous task for the party this year as leadership works to meet competing demands from members.

“The process over there can be agonizing in terms of its pace,” House Ways and Means Committee Chairman Richard Neal (D-Mass.) said about the Senate last week. 

Manchin has repeatedly suggested that he thinks Congress should wait before voting on the spending package, citing concerns about inflation. Manchin has also suggested in the past that there be work requirements and lower income limits for the expanded child tax credit.

When asked Wednesday about whether he felt urgency to pass the spending package in time for the IRS to make child tax credit payments on Jan. 15, Manchin indicated that he thought that any missed payments could be made up for at a later date.

“I've never seen a situation where we weren't able to make up whatever you thought time would be lost,” he told reporters.

The spending package may be Democrats’ best option for passing an extension of the expanded child tax credit before the end of the year, given that lawmakers are using the reconciliation process. A stand-alone bill with a temporary extension could face challenges getting enough Republican support to bypass a filibuster.

“Could you get 10 Republican votes for it? I don't know the answer to that,” Sen. Tim Kaine (D-Va.) said.

No Republican in Congress voted for Biden’s COVID-19 relief package including the expanded benefit. Republicans expanded the child tax credit themselves in their 2017 tax cut law, but they have criticized Democrats’ subsequent expansion, arguing that Democrats eliminated work incentives associated with the child tax credit. Republicans have also expressed concerns that the monthly payment structure would lead to an increase in improper payments and fraud. 

Some Republicans have signaled interest in reaching a bipartisan agreement on a path forward for the tax credit but said the benefit would likely look much different from the expansion approved under Biden earlier this year. 

“Unfortunately, that went to very high income people. It was unlinked to work, and I would prefer we went back to the original formulation,” said Sen. Susan Collins (R-Maine).

But Democrats are also committed to extending the current expansion to the benefit as it stands, with some insisting the party use the expansion’s current deadline later this month as an impetus to get Biden’s larger spending plan passed.

“Let's use this to finally make a decision to get Build Back Better done,” Kaine said, calling the tax credit expansion “the single best deadline that might get us finally to act.”

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