Tax credit increase would exclude millions of low-income children, study finds

WASHINGTON — While the giant domestic policy bill that Republicans pushed through the House last month includes tens of billions of dollars to increase child-rearing subsidies, millions of low-income children would not benefit because their parents earn too little, a new analysis shows.

The change involves the child tax credit, a once-obscure segment of the tax code that distributes about $110 billion a year and has ignited partisan debates over poverty and inequality. Republicans say their support for the credit, which President Donald Trump doubled in his first term, shows concern for ordinary families, while Democrats fault income tests that exclude the neediest parents.

The GOP bill raises the maximum credit to $2,500 per child, from $2,000, and includes virtually all middle- and upper-income families. But a third of children would not receive the full credit because their parents have low wages or lack jobs, according to the Center on Poverty and Social Policy at Columbia University. Families must reach income targets to receive the full benefit.

Of the 22 million low-income children who would be denied the full credit under the House bill, 17 million would receive no additional help from the House bill, and 5 million would receive only part of the $500 increase, the study found. Those excluded from the maximum aid include 65% of children with single mothers, 51% of Black children, 44% of Latino children and 40% of children in rural areas.

“This is a very large federal expenditure on children, but low- and moderate-income families won’t receive the full benefit, and that’s where the money would do the most good,” said Sophie Collyer, a Columbia researcher and co-author of the study.

The plan to raise the credit, which would cost nearly $25 billion a year, renews partisan jousting over the program’s purpose. Republicans see it primarily as a tax cut, so they direct it toward families who owe income tax, although some needy families with no income tax bills receive partial payments. Democrats would give the credit to all low-income parents, regardless of how much they work or earn, essentially creating an income guarantee to fight child poverty.

By increasing the credit’s value to $2,500 a child, the House bill effectively restores it to its value in 2017, when Trump raised it. Since then, it has eroded with inflation.

Unlike other measures in the bill, which make deep cuts to Medicaid and food stamps, the increase in the credit’s maximum value would not withdraw aid from low-income children. It just omits many from the gain.

A different child tax credit provision in the bill could bar aid to as many as 4.5 million children who are citizens or legal permanent residents, by requiring parents in mixed-status families to provide Social Security numbers, the poverty center found in a separate study with other groups.

In raising the credit, the House bill increases the sum parents must earn to receive the full credit. A single mother with two children would need an income of $40,000, the rough equivalent of a full-time job at $20 an hour. That is nearly three times the federal minimum wage and higher than the minimum wage in every state. A two-parent family with three children would face an income threshold of $56,000.

Of the 10 states where the Columbia analysis found the largest share of children would be excluded from the full credit, nine are Republican strongholds, including Mississippi (45%), Louisiana (43%) and Oklahoma (40%).

Under current law, about 1 child in 4 cannot receive the full benefit. Some Republicans have suggested a willingness to expand the credit’s value for low-income families, though the House bill does not do so. Senate Republicans have not said what they will do. If Congress fails to act this year, the value of the credit will fall to $1,000 per child.

A measure signed by President Joe Biden in 2021 increased the credit and included all low-income children. It cut child poverty to a record low but expired amid unified opposition from Republicans, who called the aid welfare and said it discouraged work.

Jane Waldfogel, a Columbia professor, studied that expansion in her new book, “Child Benefits: A Smart Investment for America’s Future.” Waldfogel said it reduced hunger and other hardships while increasing parental spending on books, toys and after-school activities. She called that record consistent with child aid in other countries.

“The evidence for its success couldn’t be clearer,” she said.

But Scott Winship of the conservative American Enterprise Institute said a short-lived effort during the COVID-19 pandemic offered few lessons. He warned that an income guarantee could erode incentives to work and marry.

“The child tax credit was designed to reduce the tax burdens of parents who pay taxes, and I think the Republicans were wise to preserve that as its primary focus,” he said.

This article originally appeared in The New York Times.

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