Should The Child Tax Credit Be Limited To Those With Lower Incomes, As Manchin Prefers?

In 2021, the Child Tax Credit (CTC), helped nearly all families with children. But this year, because American Rescue Plan (ARP) expansions have lapsed, it is concentrating benefits on middle-income families. High- and low-income parents are receiving more limited assistance. And, as Democrats try to find a path forward for their stalled Build Back Better (BBB) social spending and tax bill, they are in the midst of an intense debate over how to restore those benefits for very low-income households. But what should they do about those high-income parents?

The issue is getting attention since Sen. Joe Manchin (D-WV), a key BBB holdout, reportedly suggested to fellow lawmakers that he’d support BBB if CTC benefits for high-income families are trimmed or even eliminated.

The expanded CTC is celebrated for cutting child poverty nearly in half and reducing it below 10 percent in all but three states. And it’s easy to question why current law allows families making more than $400,000 to claim the credit. But phasing it out at lower incomes creates its own problems. It can create high hidden tax rates, could undermine the credit’s advance payment feature and the credit’s overall political support, and could create coverage disparities across states.

And there are better ways to address this problem. For example, Congress could retain the current CTC schedule but raise tax rates for the highest income households. That idea is less likely to violate President Biden’s pledge to not increase taxes for families making less than $400,000.