Over the weekend, the U.S. Senate passed the American Rescue Plan (ARP), a $1.9 trillion coronavirus relief package. Now the bill must go back to the U.S. House before President Joe Biden signs it into law. The package includes many features that were part of the CARES Act, including direct cash payments to taxpayers and aid to cities and states. This bill, however, goes beyond the original CARES Act by implementing provisions that seek to benefit Americans impacted by the pandemic both in the short- and long-term.
One prominent feature of the relief package is expanding the child tax credit. The child tax credit (CTC), like all tax credits, reduces qualified filers’ income tax bills. Most often, this manifests as an increased tax refund, particularly for low- and middle-income filers. The CTC has been critical for supporting the ever-increasing cost of raising children; broadening it will impact nearly every child in the country and aid families during a particularly precarious time. In West Virginia alone, expanding the CTC will benefit about 400,000 children.
Under the existing law, qualified families with children under 17 can receive a credit of up to $2,000 per child – $1,400 of which is refundable. Filers can also receive an additional $500 for some dependents up to 24. The American Rescue Plan prioritizes relief for families with children by temporarily expanding the CTC, both in terms of who receives it and how much money families can receive. The current proposal offers families with children under 18 up to $3,000 per child, plus an extra $600 per child under six. This expansion more than doubles the size of the credit, making it an incredible tool for alleviating financial hardship for many families.
The revised plan also removes the non-refundability feature, allowing families to receive the entire credit, not just a percentage of it. In addition to making the whole credit refundable, it also targets more families by removing the provision that gives refunds equal to 15 percent of earnings above $2,500. For example, in 2019, a single parent with one child would need to earn about $24,300 to be eligible for the full $1,400 refund. Similar families living below this threshold receive less money from this credit—making the existing CTC fundamentally regressive. The lowest 20 percent of earners in West Virginia average about $11,000 annually. Almost no families with incomes in the bottom 20 percent received the total credit amount.
The relief bill undoes this requirement, allowing the CTC to offer crucial aid to the nation’s most vulnerable families. In West Virginia, this modification will offer increased support to nearly 80,000 children in the bottom quintile alone. According to the Institute on Taxation and Economic Policy (ITEP), the poorest 20 percent of West Virginia families with children will receive an average of $4,760 – six times the current CTC. The credit will effectively boost this demographic’s annual income by about 43 percent. The second 20 percent of West Virginians will also receive an additional $800 on average or a 10 percent increase to their annual income.
There is one more critical feature of the propositioned CTC: monthly installments. Because Congress introduced this piece of legislation during the ongoing tax season, families would ordinarily have to wait until the 2022 tax season to benefit from it. However, ARP uniquely allows families to receive benefits monthly – beginning as soon as July – rather than as a lump sum. This measure responds to the urgent need many families face through the pandemic while implementing changes that will benefit them in the longer-term.
This moment is pivotal for low- and moderate-income families in West Virginia. ITEP estimates that these changes will lift more than 38,000 children out of poverty, including 12,000 children experiencing deep poverty. Overall, this proposal reduces childhood poverty in West Virginia by over 50 percent. This policy is significant for West Virginia’s children of color, particularly Black children, who are more likely than their white counterparts to experience poverty. In 2018, Black West Virginians earned about $7,200 less than their white counterparts, a racial income gap of about 27 percent. The proposal addresses structural racial inequality by modifying the CTC to allocate more money to more families in the bottom quintiles.
Expanding the CTC is just one way that the federal government can help families during this pandemic and beyond. This particular policy undoes a regressive feature of the federal tax code, which will help crucial aid reach the families who need it most. Combined with other policy proposals included in the American Rescue Plan, the child tax credit stands to significantly address poverty – especially extreme poverty – as well as structural and racial inequality. While the updated child tax credit offers provisional relief to families, lawmakers must advocate for its permanent expansion to mitigate long-term poverty trends in West Virginia and nationally.
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