Published February 22, 2024
Lawmakers are considering a sweeping tax bill, which passed the House of Representatives by a 357-70 vote and offers a suite of assorted business-friendly tax credits, along with some tweaks to the child tax credit for low-income families. Many on the Right can agree with the editors of National Review, who called the pending tax bill “modest but good.”
Some Republican senators don’t love the deal as written, in large part because of its child tax credit provisions. But a small tweak could smooth the way to passage, allay some concerns about disincentivizing work, and allow Republicans to claim partial credit for a bipartisan win that would put more money in parents’ pockets. They should take their pound of flesh, pass the tax deal, and deliver on the rhetoric of being a party that fights for working-class families.
The child tax credit provisions, primarily negotiated by Sen. Ron Wyden (D-OR) and Rep. Jason Smith (R-MO), contain four notable parts. For most families, the most noticeable change would be a slight increase in the value of the child tax credit to account for inflation. Parents from all walks of life have felt the sting of increased prices for diapers, child care, and food over the past few years, and establishing the precedent that the child tax credit should increase along with the price of goods is a real win.
The other provisions are aimed at working families in the lower half of the income distribution. Because of the way the child tax credit is currently set up, roughly a third of children live in households that do not receive the full $2,000-per-child amount of the credit. Imagine a family with one parent working in a warehouse making that job’s average salary of $33,310, and another parent who stays home with their three young children. Currently, they receive almost $900 less in total child-related benefits via the child tax credit than their neighbors down the street, also with three children, who earn a household income of $40,000.
Under the terms of the new tax deal, the initial family would now receive a full $6,000 of child tax credit. Opponents of the bill call this “welfare,” as if allowing the benefits to increase faster for families with multiple children would revive the pitfalls of the 1970s policy that took benefits away from parents who increased their income.
Part of this may be because of a misimpression. When politicians hear of low-income parents with multiple children, they may not realize that many of the families who will most directly benefit from a switch in how the benefit is calculated (for the wonks in the room, it will switch from a per-household to per-child phase-in) are married families, many of whom have a stay-at-home parent like our fictional example above.
When I ran some back-of-the-envelope calculations using the Current Population Survey Annual Social and Economic Supplement, I found that nearly 40% of households that will be beneficiaries of the faster phase-in are married couples with two or more children.
Take Utah, for example, represented in Washington by Republican Sens. Mike Lee (full disclosure: my former boss) and Mitt Romney, both traditionally champions of an expanded child tax credit. By my admittedly ballparked estimates, there are 15,000 Utah families, all married couples making under $50,000 with two or more children, that would see a material boost in their child tax credit thanks to the Wyden-Smith deal.
The biggest hesitation among many on the Right has been an additional part of the Wyden-Smith compromise: a so-called “lookback” provision that allows parents to use their income from the current tax year or the prior year income to qualify. This approach has been used in the past for natural disaster relief, including in the aftermath of Hurricane Katrina, when people’s income dipped dramatically through no fault of their own. The Wyden-Smith deal would make it a permanent feature under the argument that it can serve as a form of insurance for a small number of families with highly volatile incomes, such as a single mother who gives birth and leaves the workforce for a time.
It’s important to reiterate that aside from the lookback, the tax deal does nothing to change the fact a family must have at least $2,500 in earnings to receive any child tax credit, with the amount of the credit varying up to a certain maximum amount. Republicans of all stripes hew to the principle that tying a benefit to work is necessary to avoid the pitfalls of old-fashioned welfare. While the lookback isn’t expected to have a large impact, it is the only part of the bill that can be credibly said to weaken that connection, making it a natural bargaining chip.
All of this suggests the easiest path to getting Republican senators on board is getting rid of the lookback. A clean and simple amendment removing the lookback provision from Wyden-Smith would allow Republicans to put the ball in the Democrats’ court — are Democrats willing to tank the whole deal over something that only affects a relatively small number of parents? Some Republicans, such as Sens. Josh Hawley (R-MO), J.D. Vance (R-OH), and Roger Marshall (R-KS), have already expressed some support for Wyden-Smith’s child tax credit provisions. However, to clear the Senate filibuster, the deal needs 60 votes.
Republicans cannot and should not allow the child-related provisions of Wyden-Smith to be seen as a “Democratic priority.” The child tax credit has always been an exemplar of bipartisan deal-making and is a key way of delivering for parents. Dropping the lookback could provide a path for skeptical GOP senators to get on board and champion Wyden-Smith for what it is — a modest improvement to the child tax credit that lays the groundwork for more meaningful steps later.
Patrick T. Brown is a fellow at the Ethics and Public Policy Center, where his work with the Life and Family Initiative focuses on developing a robust pro-family economic agenda and supporting families as the cornerstone of a healthy and flourishing society.
