It is designed to dramatically reduce the number of children living in poverty by putting money in their parents’ pockets quickly and regularly. Democrats say if the government can send stimulus checks to 150 million people, it can too.
“Families wait all year for tax filing season because their earned income and child tax credits cover critical needs like overdue bills or medical care,” said Ron Wyden, the senior Senate Democratic tax editor in a statement. “Making at least the child tax credit payable up front would help reduce the ongoing financial pressure on these families.
But the proposal is still in its early stages and it will likely be much more difficult to implement than reducing stimulus checks. Democrats have yet to speak with the Treasury Department to find out how this might work, and it’s unclear how quickly the department might be able to roll out such a program.
It would also be expensive and cost over $ 100 billion a year.
Some Republicans are likely to back the plan, a prominent conservative tax expert predicted, although it could be a divisive issue for GOP lawmakers.
The proposal hasn’t received much notice, but it is one of the biggest tax code changes currently being pushed by Democrats. Lawmakers have championed the idea for years, but with President Joe Biden endorsing the idea and democratic control of Congress and the White House for the first time in a decade, many now see their chance to make it happen.
Democrats say a lot would be better if they could take the credit in monthly installments, as this would create a reliable income stream that would help them cope with unforeseen expenses throughout the year.
They also want a big increase in the amount low-income people can take out on credit. It currently caps at $ 2,000 per child. But the poor tend to receive a fraction of it because the provision – designed to encourage work – is indexed to people’s wages, up to certain limits. In 2019, those earning between $ 10,000 and $ 20,000 received an average of $ 850 of the child tax credit, while those earning between $ 75,000 and $ 100,000 generally received more than three times that amount.
Democrats would increase the maximum credit to $ 3,000 per child, with $ 600 more for children under six. They also want to remove the work requirement so that people can enjoy the entire break even if they have no income.
Their installment plan would be optional as some might prefer to receive a lump sum at tax time.
And if the poor are at the center of the initiative, it would also be open to others – although monthly checks would make less sense for those with higher incomes. For them, the child tax credit – like any other break – cuts their tax bill. If they chose to receive monthly checks instead, they would have to pay more at tax time.
While the IRS has never done something like this before, Democrats point to recent stimulus checks, also known as Economic Impact Payments, as proof that they could achieve it.
“The fact that the IRS was able to do it so quickly for so many people with IAPs thrills us about their ability to be able to do it on a regular basis for this group of taxpayers,” said a congressional aide involved in developing the plan.
In the past year, the IRS has sent checks twice to about half the population, including millions of hard-to-reach people whose incomes are so low that they are exempt from filing tax returns. income and have little interaction with the IRS. Combined with the usual annual tax refunds, the IRS has distributed nearly three-quarters of a trillion dollars in the past year.
And the agency is improving. Although it took the IRS months to send out the first set of checks, the agency says it sent 140 million payments within two days of signing the latest coronavirus relief program.
Democrats believe the infrastructure developed for these payments can be reused for monthly payments. They note, for example, that the IRS now has a vast mine of direct deposit information from people.
But sending monthly checks is likely to be trickier because people’s financial and personal circumstances can change throughout the year, which can affect how much they should receive or even whether they are eligible.
People’s incomes fluctuate, for example. They have babies, which qualifies them for larger payments; and their children become adults, which disqualifies them. The question of who can claim the credit can be complicated if a couple divorces, for example.
There is also the question of what happens if someone ends up receiving too much – lawmakers tend to be disgusted to ask. overpayments to be reimbursed. With the recent stimulus payments, Congress allowed beneficiaries to keep the difference if they received more than they should.
It would also be an entirely new mission for the IRS, which Democrats have long complained about is already too watered down.
Perhaps the closest analogy to what lawmakers envision is the advance insurance subsidies provided under the Affordable Care Act. The implementation of this program by HHS, initially, was difficult.
Republicans will be divided over the proposal, predicts Ryan Ellis, former U.S. tax policy director for Grover Norquist’s tax reform.
Some have been enthusiastic supporters of credit and have wondered if there could be a way for people to benefit from it throughout the year. But others, he says, will see the plan as nothing more than a social spending program under the guise of a tax provision.
“There will be a split in the party,” he said. “Some Republicans will definitely oppose it.”
In the past, lawmakers have tended to skate on the administrative challenges of implementing such a plan, saying they would leave it up to the Treasury to figure it out. But now Democrats say they’re trying to sort out the details.
They are considering the Treasury to set up an online tool where recipients could report changes in their situation during the year, the assistant said – much like the one the IRS developed to send stimulus checks to non-filers. They also intend to require people to reimburse overpayments when they do their taxes, even if the details are unclear.
Democrats say they intend to give the IRS much more money to set up the program. But they still have to talk to the Treasury about the logistics, and with the change of administration, that department is still in the process of being staffed.
“We’ll have to work out the details of the distribution with the IRS,” said Sen. Sherrod Brown (D-Ohio). “But I made it clear that I wanted to see Congress make this investment in children and workers, who need help weathering the pandemic.”