Recent timeline. The Tax Cuts and Jobs Act (P.L. 115-97, TCJA) of 2017 made several temporary changes to the CTC that are currently set to expire after 2025, including doubling the maximum credit from $1,000 to $2,000 for eligible children under age 17. The CTC phases out by 5% of adjusted gross income over $200,000 for single taxpayers and $400,000 for married taxpayers (previously $75,000 and $110,000, respectively). The Additional Child Tax Credit (ACTC) or refundable credit is worth up to $1,400 and limited to 15% of earnings above $2,500.
During the COVID-19 pandemic, Congress passed several legislative packages with short-term tax relief, such as temporary enhancements to the CTC under the American Rescue Plan Act of 2021 (P.L. 118-2, ARPA). Often referred to as the expanded CTC, ARPA made several temporary changes for 2021 only. The bill made 17-year-olds eligible, lifted the ACTC cap to make the CTC fully refundable, and increased maximum credit limits. For children age 5 or younger, the maximum CTC was $3,600, and $3,000 for children ages 6-17.
Over the course of the second half of 2021, the CTC was issued in advance monthly payments generally worth half of the total benefit that was expected to be claimed by the taxpayer during the 2022 filing season.
Campaign trail. On August 16, Harris spoke at a campaign rally in Raleigh, North Carolina, and gave a glimpse into her tax plan. Harris said “restoring” (presumedly to expanded levels under ARPA) two tax policies — the CTC and the Earned Income Tax Credit — would provide “more than 100 million Americans” with a tax cut.
In October 2022, the Joint Committee on Taxation (JCT), published an analysis of the budgetary effects of making the ARPA expanded CTC permanent. Overall, the JCT estimated the policy would reduce federal revenues by over $1.25 trillion from fiscal years 2023-2032. The JCT also forecasted an additional $113 billion revenue drop after “accounting for macroeconomic effects.”
However, the analysis did not model outcomes on child poverty, of which Harris claimed the policy directly combats. “We know it works,” she said.
Democrats have previously introduced legislation to permanently extend the ARPA CTC, like the Working Families Tax Relief Act sponsored by Sharrod Brown of Ohio and over 40 other Democratic senators.
Harris also committed to increasing the CTC to $6,000 for the first year of a child’s life. “That is a vital year of critical development of a child, and the costs can really add up, especially for young parents who need to buy diapers and clothes and a car seat and so much else,” said Harris. “And we will do this while reducing the deficit.”
Meanwhile, earlier Friday morning, the House Ways and Means Committee conducted a field hearing at the Iowa State Fair in Des Moines. Only Republican members of the committee were present. There, Chair Jason Smith (R-MO) lauded the TCJA, calling for provisions set to expire at the end of 2025 to be extended, including the doubling of the standard deduction, the “death tax” exemption, and the CTC.
Expiration of the TCJA tax provisions “would mean the average family of four earning $75,000 or less a year would face a $1,500 tax hike,” said Smith. “That means smaller paychecks for families already struggling to make ends meet because of inflation.”
Hearing witness Sarah Curry, research director at the Iowans for Tax Relief Foundation, testified that her family “benefitted immediately” from the TCJA version of the CTC when her three sons were born, especially her youngest who was diagnosed with autism spectrum disorder. “The TCJA tax credit lets us use our own resources as his parents for services that will help him be a happy and productive American,” said Curry.
Smith accused Harris of wishing to see the TCJA provisions, including the CTC, expire, allowing the credit to be “slashed in half.”
Ongoing CTC debate. Earlier in July, the CTC sparked debate at a Senate Finance Committee hearing on child care issues as lawmakers sparred over the credit’s coverage. While there is broad agreement that the credit is valuable to low- and middle-income families and bipartisan support to expand it, disagreement over maximum amounts, eligibility, and refundability persist.
Also weighing in on the CTC discussion was Senator JD Vance (R-OH) — Former President Donald Trump’s vice president pick — who in a CBS News interview August 11 floated the idea of a $5,000 per-child CTC. But he said that would depend on congressional talks to see if that would be “viable.”
In response to Vance’s proposal, Senate Finance Committee Chair Ron Wyden (D-OR) criticized his absence from an August 1 Senate vote to end debate on the Tax Relief for American Families and workers Act (H.R. 7024), a bipartisan, bicameral tax package crafted by Wyden and Smith. The bill fell short in a 48-44 vote.
“If JD Vance sincerely gave a whit about working families in America, he would have shown up in the Senate a week and a half ago and voted for my proposal to expand the child tax credit and help 16 million low income kids get ahead,” said Wyden in a statement August 12.
Among other tax items, the bill would expand the CTC for tax years 2023 through 2025 but not quite to ARPA levels. Specifically, the proposal revises the refundable CTC to a per-child basis and increases refundable limits for each year: $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025.
Under the bill, the CTC would be adjusted for inflation in 2024 and 2025, and the maximum refundable credit would also be adjusted for inflation in 2025. Additionally, it would “allow tax filers to use their taxable income from the previous year to calculate their earned income eligible for the credit in tax years 2024 and 2025,” explained the Congressional Budget Office (CBO) in its score of the Tax Relief for American Families and Workers Act.
“In total, JCT estimates, those changes to the child tax credit would increase outlays by $30.6 billion over the 2024-2026 period,” the CBO estimated.
Senate Finance Committee Ranking Member Mike Crapo (R-ID) objects to the refundable aspect of the proposal, claiming that $30 billion, or 91% of the costs to expand the CTC, “would go to individuals who pay no federal income tax.
“That isn’t tax relief — it’s a subsidy,” said Crapo August 1 ahead of the Senate vote.
After Harris’ campaign event, Wyden endorsed her economic agenda and tax policies. “As the top Democrat on the Senate Finance Committee, which makes policy on taxes, health care and international trade, I’ll be proud to work with Vice President Harris to make these proposals a reality when she’s elected president,” said the chairman.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
