This post has been republished from Professor Patricia McCoy’s Substack. Her new book, “Sharing Risk: The Path to Economic Well-Being for All,” is available from The University of California Press.
In my last two columns, I blasted the House of Representatives for voting to throw millions of people off of health insurance in the One Big Beautiful Bill Act, which is now pending in the Senate. As it is, half of American households live on less than a living wage, as I discuss in my new book Sharing Risk: The Path to Economic Well-being for All. And that’s with layers of social safety nets, ranging from subsidized health insurance and Food Stamps to student loan protections. The One Big Beautiful Bill Act would unravel these safety nets all at once, even though millions of working families depend on them to make ends meet.
Paradoxically, the House Republicans did agree to expand a different safety net for families who have children, called the Child Tax Credit or CTC. In this week’s column, I explore who wins and who loses from the proposed amendments to the CTC and why Republicans support it even though they oppose so many other forms of income-targeted relief.
Congress first rolled out the Child Tax Credit in 1997, with broad bipartisan support. Since then, the CTC has undergone a number of revisions and remains in effect. The current version grants a tax credit of up to $2,000 to most tax filers who work, for every eligible child under age 17. (Eligible children include U.S. citizens and some noncitizens).
Using the tax system, the CTC puts cash in the hands of millions of working families for every minor child they raise. Fully 90 percent of families with kids received a CTC in 2022, in an average amount of $2,390, according to the Tax Policy Center.
The CTC (along with its companion, the Earned Income Tax Credit) is the most important form of cash assistance to working families today. Its enactment can be seen as a response to wage stagnation plaguing ordinary workers going back to the late 1970s. For the past 45 years on average, according to one report, “the median wage grew 1.7% annually in real terms during the 16 years when labor markets were tight but failed to grow at all during the other 29 years.” In the best of years, in other words, the median worker—the worker right in the middle income-wise—only received a 1.7% raise a year, after adjusting for inflation. In the other years, the median worker’s raise was $0 on average (after taking inflation into account). For low-wage workers, this wage stagnation was even worse. So, no wonder earners in the bottom half struggle to pay their basic bills.
The CTC helps relieve this problem by addressing a conundrum with the minimum wage. The minimum wage is a flat rate per hour and does not go up depending on a worker’s number of children. That is as it should be, because we don’t want fall back into the ‘60s way of thinking, for example, that women should be paid less because they don’t have a family to support.
At the same time, everyone knows that the minimum wage is stuck on low. In too many states, it is not enough for a single childless worker to survive on, let alone workers with children. The CTC makes a small but mighty contribution to narrowing that gap by supplementing the incomes of workers with children.
But that is not to say that the CTC delivers the most support to the poorest families. In fact, the lowest-income families receive the least under the Child Tax Credit. There are three reasons why that is the case.
First, parents cannot claim the tax credit unless they make enough, which is defined as at least $2,500 a year from work. As a result, the poorest workers are shut out of the CTC, even though they need it the most. This hits single stay-at-home parents especially hard, because they cannot claim the CTC unless they have enough earned income to report.
Second, only middle-income families receive the full $2,000 Child Tax Credit per child. Not surprisingly, affluent taxpayers don’t (those making over $200,000 a year for single parents or $400,000 a year for married couples). But the lower-income families also receive less than $2,000 per child (and as we saw, sometimes $0). This includes couples making less than $36,000 a year. As a result, it is possible for families on lower income rungs to receive the same total amount in CTCs for multiple children as a higher-income family with just one child.
Finally, if a family’s CTC exceeds what it owes in federal income taxes, it can receive that tax credit as a refund, but the refund is capped at up to $1,700 for 2025. (Because the refund is less than the full CTC, we say that the CTC is only partly refundable).
In all likelihood, Congress drafted these provisions to induce parents to earn more money. But kids are the ones who suffer, with one-fourth of children under age 17 in the bottom 20 percent receiving no CTC for 2022. That compares to between 94 and 99 percent of children in middle-income families who did receive a CTC that year.
Here it is important to point out that today’s level of benefits is temporary and is set to expire at the end of this year. Unless Congress acts, the top CTC will sink from $2,000 down to $1,000 per child under age 17 starting in 2026. In addition, the phase-out for high-income taxpayers will drop from $200,000 to $75,000 a year for single parents and from $400,000 to $110,000 for married couples.
In the One Big Beautiful Bill Act last month, House Republicans voted not only to extend the Child Tax Credit at its current level, but to raise it. If the bill becomes law, the CTC would rise to $2,500 per child for tax years 2025 through 2028. But the hike would only be temporary, and then drop back down to $2,000 per child after 2028 (with an adjustment for inflation).
There are several things worth noting about this provision. First, funny, isn’t it, how the timing of the cut back down to $2,000 after 2028 coincides with the year of the next presidential election. Do the House Republicans know how that election will turn out?
And second, the House decided to lower the level where the CTC phases out for affluent earners back down to $75,000 for single parents and $110,000 for married parents. Taxpayers making more would not receive the full $2,500 tax credit per child. Presumably, this was a cost-saving measure to partially offset the increase to the full tax credit.
Third, the House did not grant the increased CTC to the lowest-income households. Those same families would continue to only receive a partial tax credit or none at all. In fact, under this bill, a married couple with two children would have to make a lot more—$48,000 instead of $36,000 a year—to receive the full credit. (That’s because they would have to owe more federal taxes to collect a full $2,500 credit per child, compared to a $2,000 credit). If this provision becomes law, 5 million more children—1 out of every 3 kids—would be denied a full credit. Once again, kids from middle-income families would win out under the bill, while kids from families making less would not.
There is another punitive aspect of the CTC provision. Right now, tax filers only have to provide Social Security numbers for their children in order to claim the CTC. But under the bill, tax filers would also have to provide Social Security numbers for themselves and for their spouses. According to a recent study, this would disqualify over 4.5 million children who do have Social Security numbers from receiving a CTC. Although this provision seems to assume that anyone without a Social Security number must be undocumented (which is not the case), many of those 4.5 million children who stand to lose under this provision are U.S. citizens themselves.
Bottom line, the increased Child Tax Credit in the One Big Beautiful Bill Act would only go to middle-income households with parents and children who all have Social Security numbers. Children whose parents did not make enough money would get no increase, even though they need that safety net the most. And children with at least one parent lacking a Social Security number would get no CTC at all—even if those children were U.S. citizens.
One last thought before I wrap up. Interestingly, in the bill, the House decided to punt on another tax credit that is due to expire this year, which is the enhanced premium tax credit under Obamacare. So why did the House vote to increase the CTC while attempting to cut subsidized health insurance under Obamacare by doing nothing to extend those benefits?
Of course, one can never be sure what motivates a large body like the House of Representatives to make a decision, especially when that decision takes the form of inaction. Some argue that the CTC has broad public support because families have to file tax returns in order to claim it. But the same is true for Obamacare tax subsidies, yet Republicans are dead-set on rolling them back. Rather, many House Republicans may like the fact that the Child Tax Credit rewards having children. Many may also assume that the CTC incentivizes parents to work (although the research on that point is unclear).
At the end of the day, the Child Tax Credit provisions in the bill would do nothing to improve the well-being of lower-income kids and would probably throw around 4.5 million kids off of the tax credit altogether. On top of that, the One Big Beautiful Bill Act would kick over 15 million people off of health insurance while also cutting Food Stamps. This would cruelly inflict more harm on families who are already hurting financially. And don’t pretend those families wouldn’t notice. If Republicans are counting on this bill to animate their base, is that the way to do it?
This post has been republished from Professor Patricia McCoy’s Substack. Her new book, “Sharing Risk: The Path to Economic Well-Being for All,” is available from The University of California Press.
BC Law: Impact 