Democrats make politically risky bet on monthly child tax credit


WASHINGTON – Democratic lawmakers are betting that an expanded child tax credit, paid monthly for the first time, will prove to be a successful campaign message in the 2022 midterm election, but the policy also carries political risks that could alienate some taxpayers.

Beginning July 15 and through the end of the year, parents will begin receiving monthly direct deposits or checks of up to $ 300 per child. The move was part of President Joe Biden’s $ 1.9 trillion pandemic relief bill of March.

The shift to monthly payments – rather than a lump sum distributed after tax deadlines next spring – is designed to help low- and middle-income families better cope with their regular living costs, especially in the midst of the crisis. persistent pandemic. The credits are also fully refundable and are paid to families, including those who do not file an income tax return.

The potential problem is that the new distribution method means some people won’t get the refunds they would otherwise expect in the spring – and might even have to pay the IRS if their income ends up being too high.

This disappointment, while illogical given the expansion of the tax credit this year, could prove politically embarrassing next year. Most Americans – nearly 80 percent – would rather overpay their taxes if it means a spring refund, according to a survey commissioned by the New York Times in 2019, which examined the impact of the 2017 tax cuts passed by Republican lawmakers and then President Donald Trump.

Economists widely agree that sending tax credit payments in small monthly installments, rather than one large lump sum, is a good policy because it allows the family more access. consistent with liquidity throughout the year. Financial experts are also quick to point out that receiving a large tax refund isn’t necessarily a good thing – it means the IRS was withholding too much of a worker’s salary throughout the year.

The Democrats who designed the new payment mechanism “want to prevent people from making bad decisions in the short term,” said Bob Kerr, a former Internal Revenue Service official who now consults on tax administration. “I don’t think it’s bad science or bad math, but it doesn’t meet people where they are. They want the refund they want.

Most taxpayers got at least a modest tax cut from the 2017 overhaul, but many may not have realized it because the Treasury Department revised the withholding formula so people have less. taken from their paychecks through 2018. found lower-than-expected refunds or even an IRS bill – fueling resentment against a law that was already seen to benefit the wealthy more than the middle class.

Biden’s March Pandemic Assistance Program extended the child tax credit to $ 3,600 for children five and under and $ 3,000 for older ones, which translates to $ 300 and $ 250 per month.

The credit has also been made fully refundable, so that the full amount can be paid even if a family owes less tax than the credit amount.

Advocates of monthly distributions say recurring payments mean households will more easily be able to pay unexpected bills and handle financial emergencies.

“It matches the way families pay their bills and their expenses each month,” said Ashley Burnside, policy analyst at the Center for Law and Social Policy. “You can use the child tax credit payments to meet them rather than waiting months to get the annual lump sum at tax time. “

Democratic lawmakers have touted the benefits for their constituents. On July 8, Senate Majority Leader Chuck Schumer urged eligible New York residents to take advantage of the expanded credit.

“It does great things for our economy, injecting money into it,” Schumer said at a press conference with other lawmakers from his home state. “Most of all, and what we’re so proud of, is that it lifts half of New York’s children out of poverty.

Progressive Representative Alexandria Ocasio-Cortez said at the same event: “These payments represent the biggest anti-poverty program in a generation.”

So far, polls have been mixed on how the public perceives the changes. According to a June Hill-HarrisX poll, a majority of just 51% of voters say the credit is fully refundable, with some opponents saying some eligible families do not need help. A larger share, 54%, said they oppose increasing the amount of credit and 53% said they don’t like the monthly payments.

The IRS estimates that about 39 million households – covering 88% of children – will benefit from the credit. The new monthly disbursements will only apply to half of the credit for 2021, given the start of July, with the rest being applied to any overdue tax liabilities or added to the tax refund when people file next spring, which could reduce any disappointment next year, said Kyle Pomerleau, resident researcher at the American Enterprise Institute.

Biden has highlighted a proposed extended credit extension through 2025 as a key priority among his U.S. Family Plan proposals, and has been pushing Democratic lawmakers to move forward without Republicans’ backing for the legislation.

“There is some risk – the reality of getting monthly payments is you can take a hit later,” said Brad Bannon, a Democratic political consultant. “But next year the economy might be in better shape. We are now talking about cash payments. People can use it to get out of debt and that money will flow into the economy. “

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