The Center on Budget and Policy Priorities (CBPP) is a research and policy institute that informs and shapes federal and state policies to reduce poverty, promote equity, and build opportunity.
We are thrilled that Bob Greenstein has agreed to be our Interview with a Funder featured guest as one of his final acts before retiring at the end of 2020. The entire field owes Bob a huge debt of gratitude for his advocacy, work and leadership on tax policy. In this piece, Bob shares his insights and recommendations for the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).
Bob is the founder and President of the Center on Budget and Policy Priorities. He is considered an expert on the federal budget and a range of domestic policy issues, including anti-poverty programs and various aspects of tax and health care policy. He has written numerous reports, analyses, book chapters, op-ed pieces, and magazine articles on these issues. His work has positively impacted countless families and communities. Bob will be missed tremendously.
Insights & Recommendations from Bob Greenstein
As 2020 ends and you prepare to retire, what insights and recommendations can you share with the field?
The coming new year, in which we will usher in a new president, brings hope for further important improvements at the federal level in both the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).
For policymakers, the top priority should be to make the Child Tax Credit fully refundable so that the poorest families, including those with little or no earnings, can receive the full credit. This is one of the single most important steps that policymakers can take to shrink child poverty. Today, about 27 million low-income children get no credit or only a partial one.\
Some leading proposals on Capitol Hill also would boost the size of the CTC from its current $2,000 per child to $3,000, and to $3,600 for young children. Those improvements, too — along with giving families options to get the credit more frequently than on an annual basis and providing the IRS the resources to handle that — would be very welcome, strengthening the CTC for both low-income and more well-off children.
Boosting the CTC’s per-child benefit amount across the board could involve trade-offs. Currently, married tax filers with incomes up to $400,000 receive the full CTC for each child, and many children in families with between $400,000 and $500,000 of income benefit as well. That makes increasing the CTC amount per child quite expensive. That expense shouldn’t be a problem unless it squeezes out other critical investments for people of limited means. The nation, for example, has massive unmet needs in the availability and affordability of housing and child care, and President-elect Biden has proposed ambitious — and expensive — initiatives in both areas. If these various measures end up competing with one another, I’d put housing and child care for people of low or modest income before a much bigger CTC for people with incomes as high as $400,000 to $500,000. Hopefully, we won’t see such competition.
Another option is to couple a fully refundable CTC with a substantial EITC increase for families with children. That would be much less costly and better targeted than raising the CTC credit amount, because the EITC phases out at $50,000 to $60,000 of income. Because the EITC phases in with earnings, however, the very poorest families wouldn’t benefit much from such an EITC expansion, and families without earnings wouldn’t get anything. For them, increasing the CTC amount would provide much larger gains.
That raises a related issue. There is no reason to make the CTC universal — that is, to extend it all the way up the income scale, including to millionaires — and good reason not to. Doing so is unnecessary for ensuring that the CTC has strong political support. From 1997 to 2017, the CTC phased out entirely for married families with two children at $150,000 in income, and that never weakened the CTC politically. Indeed, making the CTC universal would likely make it harder, not easier, to secure CTC improvements due to the increased cost. Rather than extend the CTC farther up the income scale, policymakers should reduce the level at which it starts to phase out. The Working Families Tax Relief Act, which every Senate Democrat has co-sponsored, would substantially expand both the CTC and EITC while lowering the income level at which the CTC starts phasing out from its current $400,000 for married filers to $200,000, while the American Family Act, which would expand the CTC even more, would lower the threshold to $180,000.
If making the CTC fully refundable should be the first priority for refundable credits, the second should be a major expansion of the tiny EITC for low-income workers who are not raising children at home. The EITC is now so small and limited for this group that nearly 6 million low-income workers between ages 19 and 65 are literally taxed into, or deeper into, poverty; the federal payroll and, in some cases, income taxes they owe exceed any EITC they receive.
Adding insult to injury, workers aged 19 to 24 are entirely ineligible for this part of the EITC. Many of them are young people who are risking their health during the pandemic to serve as delivery people, cashiers, health aides, food preparers, and more. America’s safety net is quite porous for non-elderly adults who aren’t raising children unless they suffer from a serious disability. The least we can do is give them a decent EITC. Doing so — and making the CTC fully refundable as well — would also narrow racial disparities to some degree and advance racial justice.
As I write these words in December of 2020, we do not know which party will control the Senate for the next two years. But I see a real chance for progress (although more limited progress) even if Republicans retain control.
Within the next two years, policymakers almost certainly will consider a tax bill, if only because they will want to extend a number of popular tax breaks that otherwise will expire. In addition, the 2017 tax law included several corporate-tax increase provisions that are slated to take effect at the end of 2021, which the business community will seek to eliminate. Under divided government, enacting any such tax legislation will require bipartisan negotiations. Republicans will want to extend various business tax breaks and drop the scheduled corporate tax increases. A key question is what Democrats will set as their own top priorities and insist upon in those negotiations.
If Democrats elevate CTC and EITC improvements and make them top priorities, they should be able to make important progress even with a GOP-led Senate. But Democrats will face competing pressures to prioritize other tax measures. Part of the job for all of us is both to persuasively make the case to Democrats to make the refundable credit expansions one of their highest priorities and to build more support for these measures among Republicans.
Policymakers have substantially expanded the EITC and CTC in recent decades, and foundations have played an important role in helping make that happen. I’m grateful that effort will continue. If we can secure the expansions discussed here, they will be among the most important refundable-credit expansions yet.