Before President Biden signed the 630 page $1.9 trillion American Rescue Plan Act of 2021, Democrats focused most of their public messaging on the $1400 checks that would be going out to everybody and their brother (and sister). Who doesn’t like free money, the Democrats figured. After President Biden signed the bill, Democrats shifted some of their messaging to highlighting an expansion of the child tax credit (CTC).
Before the new law, the CTC allowed qualifying families to reduce their income tax bills by up to $2,000 for each child through age 16. The new law increases the credit to $3,000 a child and makes parents of 17-year-olds eligible to for the 2021 tax year. The credit rises to $3,600 for children under the age of 6 as of the end of 2021.
For a qualifying family with one child, the previous credit would have cut a $5,000 tax bill to $3,000. Under the new law, the credit will cut the tax bill to $2,000, and to $1,400 if the child is under age 6. The benefit amount will gradually diminish for single filers earning more than $75,000 per year, or married couples making more than $150,000 a year.
Though framed as an expansion of the current tax credit, it is essentially a guaranteed income for families with children, because it will provide most parents a monthly check of up to $300 per child. That’s because unlike the current program, where the money is distributed annually as a tax reduction or check, the new program will send out monthly checks to provide a more stable cash flow.
Kiplinger illustrated the program by assuming a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they could get $800 per month from the IRS from July through December 2021, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 return next year.
But neither the Democrats nor the media are talking about how much the benefit will cost. You have to be a very aggressive, persistent searcher to find a number.
According to the Joint Committee on Taxation, the CTC expansion in President Biden’s rescue bill will cost a whopping $110 billion just in 2021.
But that probably won’t be the final cost because Democrats want to make the new CTC program permanent. Left-leaning groups are already lobbying for permanency.
“Substantially increasing the CTC on a permanent basis would help secure economic stability for working families, reduce inequality, and sustainably boost economic growth,” says one such organization, the Center for American Progress. “It would be one of the most effective investments we can make as a society.”
Democrats have already introduced bills in the House and Senate to make the CTC changes permanent.
The Committee for a Responsible Federal Budget figures the ultimate price tag of the $1.9 trillion American Rescue Plan Act could be twice as high if some of the policies in the bill are extended beyond their presumed expiration dates, substantially increasing deficits and debt.
As Jared Bernstein, a top economic advisor to Biden told the Wall Street Journal last month, “When you’re worried about fiscal sustainability, the things that hurt you are not the temporary measures,” Mr. Bernstein said in an interview late last month. “It’s the things that are permanent [and] that aren’t paid for.”
On March 22, 2021, the New York Times reported that President Biden’s advisers were expected to present a proposal to him recommending a series of bills that would propose a $3 trillion economic package. This would be in addition to extension of the so-called temporary tax cuts meant to cut poverty that are already on the books, which could cost an additional billions of dollars.
Since neither the Democrats nor Republicans seem much concerned about exploding deficits and debt, it’s doubtful that policies in the American Rescue Plan Act that lawmakers decide to make permanent or the cost of the $3 trillion package will be fully offset with tax increases or spending restraint.
“In addition to trying to make permanent some of the temporary provisions in the package, Democrats hope to spend trillions of dollars to upgrade infrastructure, reduce the emissions that drive climate change, reduce the cost of college and child care, expand health coverage and guarantee paid leave and higher wages for workers,” The New York Times reported.
Hang on. It’s going to be a rough, and expensive, ride.