The House has restored the child tax credit. Here’s how it would work.

An overwhelming majority in the House passed a tax package Wednesday night that includes an increase to the child tax credit for low-income households. The restoration of some of the popular credit given during the pandemic, which cut the nation’s child poverty rate by nearly half before its expiration at the end of 2021, would mean an average of between $670 and $730 in benefits per child, according to a recent analysis by the Urban Institute and Brookings Institution's Tax Policy Center.

That is much less than the roughly $3,000 expanded child tax credit distributed to all low-income households during the pandemic. The current proposal passed by the House will mainly help low-income households who make less than $58,000. Despite some Democrats’ objections, Republicans would not allow the poorest households—those making $2,500 or less—to get additional assistance.

It is estimated that the new proposal would lift as many as 400,000 children above the poverty line and make an additional 3 million children less poor in its first year.

“It's certainly not everything that we would like to see,” said Scranton, Pennsylvania, Mayor Paige Cognetti on Tuesday before the vote, “but it’s a great step forward.”

Mark Ritacco, chief government affairs officer for the National Association of Counties, said the proposal is also welcomed by counties, which are required in many states to provide safety net services and “combat intergenerational poverty.”

The increase comes as many states have adopted or are considering adopting their own child tax credit. Lawmakers in Illinois said last week they plan to push ahead with a state-level credit regardless of what happens in Washington.

How quickly the Senate will take up the bill is uncertain as it is mired in a debate over the border and needs to pass 12 appropriations bills by March 1 to avert a partial government shutdown. Senate Republicans have not yet said if they will support it.

How the Proposed Child Tax Credit Would Work

The new proposal would work differently in several ways from the expanded child tax credit, explained John Buhl, senior communications manager for the Tax Policy Center. 

Under the proposal before the Senate, the maximum amount of refunds households can receive would increase from the $1,600 the program currently gives out to $1,800 in this year’s taxes. Thereafter, it would rise to $1,900 in 2025 and $2,000 in 2026.

In 2025, the benefits will have grown enough to raise another 500,000 children above the poverty line, according to the Center on Budget and Policy Priorities. It would also boost support for another 5 million children still living in poverty.

But families would not be guaranteed to get the maximum per child, explained Andrew Lautz, senior analyst for economic policy at the Bipartisan Policy Center. Instead of being “fully refundable,” as the credit was during the pandemic, the proposal uses a formula based on how much more than $2,500 a family makes.

Under the current formula, parents only get up to $1,600 regardless of how many children they have. The new proposal would distribute that amount for each child.

“It's essentially targeting bigger families so that they can get benefits that reflect the fact they have more mouths to feed,” Buhl said. “So if your family is not huge, this proposal, you know, it's not going to be able to get you as much relief.” 

What’s more, the amount in refunds will keep going down as incomes go up, Lautz said. Only a small percent of higher-income people would benefit from the proposal.

According to the Tax Policy Center analysis, households making $29,800 to $58,000 would get an average of $670 per child. Households making between $58,000 and $104,600 would get an average of $590; those between $104,600 to $192,700 would get an average of $460; and those making more than $192,700 would get an average of $340, roughly half as much as those making less than $29,800.

The left-leaning Institute on Taxation and Economic Policy projects slightly different numbers than the Tax Policy Center because it divides the income groups differently. However, it agrees the proposal would mainly benefit lower-income families, with 93% of the additional refunds going to those making below $50,900.

Democrats Sought More, But Gave In

Cognetti, chairwoman of the U.S. Conference of Mayors’ Metro Economies standing committee, said she had hoped the proposal would move the nation toward restoring the amount of assistance during the pandemic. Restoring the credit, she argued, is important as other pandemic programs, including rental assistance, have gone away. 

“Utility rates, for example, have gone up,” Cognetti said. “And there are certain things, like rental assistance, that are gone. They’re struggling with rent. Child care costs have continued to go up. I've got two little ones here. So believe me, I know, anything that we can be doing in the tax code to help invest in families and help them get to what they need is really important.”

Rep. Suzan DelBene, a Washington Democrat, attempted to bring back the pandemic-era tax breaks so that all, even those making less than $2,500, would receive at least $3,000 during a meeting of the Ways and Means committee on Jan. 19.

“This bill does not reach families who need it the most,” she said of Smith and Wyden’s proposal.

However, Republicans like Rep. Beth Van Duyne of Texas, and the former mayor of the city of Irving, opposed the changes. Van Duyne argued that Democratic changes in the American Rescue Plan Act, giving the same amount to families regardless of how much they worked, “contributed to the labor shortages during the pandemic.”

“With divided control of government and Congress, bicameral negotiations are the only way to achieve success on tax legislation,” she said. “No one is going to get everything that they want.”

Bringing back the pandemic-era benefits would have also been more expensive, and the committee rejected DelBene’s changes in a partisan vote. DelBene still joined 187 other Democrats in passing the bill Wednesday night. 

The conservative American Enterprise Institute, meanwhile, has argued that providing more assistance would encourage people like those who are working less to not work more.

Lautz, of the bipartisan think tank, however, disagreed in a blog post that many parents would do that. 

“It strains imagination that hundreds of thousands of parents could or would effectively game the system—choosing to forego jobs paying tens of thousands of dollars per year—just to receive a few extra thousand dollars of CTC,” he wrote.