A Last-ditch Effort to Revive the Expanded Child Tax Credit

Congressional Democrats and Republicans are at a stalemate over restoring an expansion of federal child tax credits, a program that experts say offered a significant financial boost to many American families, especially those with lower-incomes. 

Reviving the more generous credits, which expired last year, is a priority for many state and local officials, who see the tax policy as a crucial way to support households in their communities. Researchers say bringing back the expanded credits, made available under the 2021 American Rescue Plan Act, would reduce child poverty and potentially bring states and local governments more than a billion dollars a year in additional revenue. 

With time running out for Congress to act this year, Democrats are making a last ditch effort, threatening to not support business tax breaks Republicans want—including on the cost of corporate research and development—unless the GOP backs the child tax credit expansion.

“Our ask is simple. If we can provide tax cuts for America's corporations, we can certainly provide a tax cut for America's kids,” House Appropriations Chair Rosa DeLauro, a Connecticut Democrat, said at a press conference earlier this week. 

“Our task is clear: No R&D without CTC,” she said. 

But so far GOP lawmakers have balked, with Rep. Kevin Brady of Texas, the top Appropriations Republican, raising concerns about the $120 billion annual price tag of the child tax credits.

“I have to assume that they're still not willing to move forward,” DeLauro said of Republican tax negotiators.

The ARPA expansion increased the value of the child tax credit to $3,600 from $2,000 for children under six years old and to $3,000 for kids ages six to 17, among other changes.

A November report from Columbia University’s Center on Poverty and Social Policy highlighted research showing that the expansion, which ran from July to December of last year, cut the nation’s child poverty rate by nearly 46% from 2020 levels.

Once the expansion of the credit ended, said the report, which examined research around the country, 3.7 million more children were below the poverty line in January 2022 than just a month earlier. The number of Black children living in poverty rose by 600,000 or 28% with the end of the expansion. Forty percent more Latino children, or 1.25 million, fell into poverty as well.

Getting less attention, but also notable, is that the expansion may be a boost to local economies and state and local tax revenue. Citing studies, the Columbia report noted that between two-thirds to three-quarters of families said they spent the extra money from the credits mainly on food and other basic expenses.

A 2021 analysis by the Niskanen Center, a libertarian Washington, D.C. think tank named after an economic adviser to former President Ronald Reagan, projected the expansion of the credit would up consumer spending nationally by $27 billion over a year. The analysis also estimated the additional spending would generate $1.9 billion more in state and local tax revenues.

The think tank projected that the largest states would see the biggest gains, with Texas and its local governments getting $262 million more in sales tax revenue. The analysis predicted California and its localities would see an increase of $224.8 million and Florida $91.5 million.

The analysis also suggested that Mississippi, Arkansas and Idaho, rural states with lower than average incomes, would see the greatest benefits to their overall economies from the credits.

Whether that happened is unknown. The think tank, the National Association of State Budget Officers and the National Association of Counties said they are not aware of any data showing the impact of the credit’s expansion on state and local tax revenue.

But Samuel Hammond, the Niskanen Center’s director of social policy, said in an interview that the fact that much of the credits allowed families to buy more essential goods helped local businesses and, in turn, generated tax dollars.

“Obviously, when you give parents greater income support, you don't just help the parents, you help the broader communities and economies that they live in,” he said.

Eryn Hurley, director of government affairs for the National Association of Counties, which supports the renewed expansion of the credit, said she wasn’t sure if there’s evidence to show the prior expansion increased tax revenue. But she added: “It's similar to any sort of stimulus. It would boost local economies. There is strong evidence that people spent the CTC on things like their children, food, or diapers. So there was an increased purchasing of those items.”

But mainly, she said, counties support the expanded credit because it is projected to lower child poverty. “You do have to think about the long-term savings associated with reducing child poverty,” she said—such as with programs providing housing, food and health care assistance.

Cassie Franklin, the mayor of Everett, Washington and a member of a progressive group of state and local officials called NewDeal, said the expanded credits have helped her city’s economy by preventing more people from living in poverty.

“This is a very working-class city. We have actually one of the lowest income levels in our county. Families are obviously struggling to make ends meet,” she said in an interview.

“People were able to continue to provide the goods and services that they needed for their families,” she said, discussing the expanded credit program. “Without it, they wouldn't have been able to, and our economy would have also suffered.”

The National League of Cities also said it supports restoring the expanded tax credit.

Asked by Route Fifty what impact the return of the expansion would have on local governments, Rep. Ritchie Torres, a Democrat representing the South Bronx and a supporter of the expanded credit, pointed to housing. 

“This child tax credit enables families to avert eviction, to avert displacement,” he said at the press conference where DeLauro spoke. “When families are evicted, the burden of sheltering those families falls on state and local government.”

“In New York City, for example, we have over 60,000 people in our shelter system. We have over 100,000 students who are unstable or temporarily housed. Imagine how many fewer students would face homelessness and housing insecurity if we were to expand the child tax credit.”

Rep. Suzan DelBene, a Washington Democrat, and another supporter of the credit voiced a similar view. “When we make investments with our kids, we lift up our communities,” she said. “If kids are doing well, and thriving, families are thriving. That helps with the workforce. Not only the workforce today, but our future workforce.”

DelBene is also working to add a provision to any forthcoming tax legislation that would restore an increase in federal tax credits states receive to build low-income housing, which also expired in 2021. 

Meanwhile, a coalition of businesses led by the U.S. Chamber of Commerce is pushing for a repeal of a 2017 tax code change that requires companies, starting this year, to spread federal deductions for research and development costs over five years.

Spokespeople for the chamber did not comment on whether the business group wants Republicans to go along with the child tax credit to get Democrats onboard with stopping the change to the research and development write-off.

Not being able to take the full deductions in the same year that companies spend the research and development dollars would make “R&D more costly to conduct in the U.S.,” the chamber said in a letter to congressional leaders, signed by dozens of companies. 

Failing to prevent the change in the business tax policy, the group added, “will reduce R&D spending and lead to a loss of more than 20,000 R&D jobs in the first five years with the number of lost jobs rising to nearly 60,000 over the following five years.”

DeLauro said she supports repealing the changing requirements for research and development deductions, but reiterated that the issue is linked to the child tax credit. 

“You can't have one without the other,” she said.