President Biden is likely to call for renewing an expansion of the Child Tax Credit (CTC) that expired at the end of 2021 in his 2023 State of the Union address on Tuesday. Has President Biden changed the CTC during his time in office, and what is he calling for now?
What are the current CTC rules?
The current CTC is $2,000 per child and is in effect through 2025. Parents may receive the CTC as a lump-sum payment when they file their taxes each year.
To receive the CTC, a household must have at least $2,500 in annual income. The CTC phases out for single filers making more than $200,000 per year or joint filers making more than $400,000 per year.
A portion of the credit, $1,600 in 2023, is available to parents regardless of whether they owe federal income taxes or how much they owe in federal income taxes. This means the CTC is partially refundable. (It would be fully refundable if parents could collect the full $2,000 per child regardless of their federal income tax liability.)
The remaining $400 per child can only be earned as parents accrue a dollar-for-dollar income tax liability.
These rules expire in 2025. The Tax Cuts and Jobs Act (TCJA), passed by Congressional Republicans and signed into law by President Trump in 2017, expanded the CTC from $1,000 per child to $2,000 per child from 2018 through 2025. Without further Congressional action, the CTC reverts to $1,000 per child in 2026.
How did President Biden change the CTC?
When President Biden took office, the CTC was $2,000 per child, available to eligible parents when they filed their taxes in the winter or spring of each year. The major changes President Biden and Congressional Democrats made to the CTC for 2021 only included:
- Increasing the size of the base credit by from $2,000 per child to $3,000;
- Providing a bonus credit to parents of children under age six, meaning the maximum credit for a child under six was $3,600;
- Providing the CTC on an advance, monthly basis to parents, meaning parents of a child age 0-5 would receive a monthly CTC payment of $300 ($3,600 / 12 months) while parents of a child ages 6-17 would receive a monthly CTC payment of $250 ($3,000 / 12 months);
- Making parents eligible for the full credit regardless of their income (before that, parents could not receive the full credit if the CTC amount exceed the federal income taxes they owed); and
- Eliminating the phase-in for the full CTC amount (before that, parents were phased into the full CTC credit amount based on how much income they earned).
These changes were only in effect for the 2021 tax year, and since the law making these changes – the American Rescue Plan Act (ARPA) of 2021 – was passed by Congress in March 2021, the advance monthly payments only took effect in July 2021. Eligible parents received half the credit amount in six monthly payments from July 2021 through December 2021, and the other half of the credit in a lump-sum payment when they filed their 2021 tax return in 2022.
How much does the CTC cost now?
According to the non-partisan Joint Committee on Taxation (JCT), the budget impact of the current CTC – the version passed by Republicans in TCJA and in effect from 2018 through 2025 – is roughly $115 billion per year. President Biden’s expansion of the CTC in ARPA therefore nearly doubled the budget impact of the CTC.
How much did President Biden’s CTC expansion cost in 2021?
According to the non-partisan Congressional Budget Office (CBO), just one year of President Biden’s CTC expansion had an additional $109 billion impact on the federal budget. Roughly one-fifth of this budget impact was from reduced tax revenues collected by the government, and the remaining four-fifths was increased spending on parents for whom the tax credit amount exceeded the federal income taxes they owed.
How much would President Biden’s CTC expansion cost now?
According to CBO, making the 2021 CTC expansion permanent would have a federal budget impact of $1.597 trillion in the first decade alone. That’s an average of nearly $160 billion per year over each of the next 10 years.
What does NTU Foundation believe on CTC reform?
NTU Foundation believes in four general principles for CTC reform outlined by our sister organization, NTU, in 2021:
- Lawmakers should focus the CTC as an anti-poverty measure, rather than a subsidy for middle-class or upper-middle class parents;
- Lawmakers should make an extension of the expanded CTC deficit-neutral;
- Lawmakers should make anti-poverty programs more efficient for beneficiaries and taxpayers, by simplifying and reforming complex programs; and
- Lawmakers should leave low-income households, on net, better off financially than before, with any additional necessary offsets coming from highly regressive benefits or cuts to wasteful spending throughout the federal budget.