Debbie Weinstein is the Executive Director of the Coalition on Human Needs.
It isn’t every day that Congress has the opportunity to enact policy solutions that are likely to kill two birds with one stone. The Child Tax Credit (CPC) provision in the House version of the Economic Recovery and Reinvestment Act, however, is the type of policy that could do just that. The Child Tax Credit is both vitally important to the growing number of children whose families are suffering during the current recession and a highly effective tool for stimulating the economy. Increasing the number of families who receive the credit and the amount of credit they receive should be a high priority as the House and Senate reconcile their economic recovery packages in Conference Committee.
Here’s why: Under the current CTC structure, earnings in 2008 needed to exceed $8,500 in order for a family to qualify for the credit. The credit is 15 percent of the amount exceeding $8,500. So, for example, if the family’s earnings are $1000 higher, or $9,500, they would receive $150. If their earnings are below $8,500, they receive nothing. Under the house plan the earnings threshold would be eliminated for the next two years so that workers with lower incomes would be eligible – regardless of earnings – and would at least receive a partial credit for their earnings. Families with two children who earn the full-time minimum wage of $14,500 a year could receive a $1,000 credit for each child or a total of $2,000. The Senate economic recovery plan, which lowers the earnings needed by just $400 to $8,100, would result in that same family receiving just $960.
A letter signed by 765 advocacy groups (pdf), service providers and faith-based organizations is urging Congress to adopt the House version of the CTC provision in the final economic recovery package. According to the letter:
If families’ eligibility for the Child Tax Credit were to begin with the first dollar of earnings, more poor families would qualify, and the amount provided to struggling low-income families would increase. Because the Credit phases in gradually, the full $1,000 Credit would not be available to a family with one child until earnings reached $6,667; a family with two children would receive a $2,000 Credit once earnings reached $13,333. A parent working full time at the minimum wage ($14,500) would receive $2,000 for two children. At the current $8,500 earnings minimum, such a family would receive less than half that amount — $900.
Significantly reducing or eliminating the threshold at which families can receive the CTC is important for two primary reasons:
- It will protect many children from falling into poverty when their parents lose their jobs. As the recession deepens, the number of poor children is expected to increase by as much as 3.3 million and the number of children in deep poverty by up to 2 million. By expanding the CTC, fewer children will experience the devastating effects of poverty.
- It will help the economy by putting money into the hands of people with very low incomes who will spend it immediately to meet basic needs. Conservative economist Mark Zandi of Moody’s Economy.Com estimates that for every dollar spent by the federal government on tax credits like the CTC, $1.22 flows into the economy.
In closing, here is how the sign-on letter I mentioned above summarizes the dual value of the House version of the CTC provision in both stimulating the economy immediately and providing direct relief to millions of American children and families who need it most.
Economists tell us that more spending by consumers, businesses, and by all levels of government will spur economic growth, saving and creating jobs. To the extent that tax cuts are a part of the recovery package, we urge you to give first priority to tax credits that increase the purchasing power of low-income families. Making more low-income families eligible for the refundable Child Tax Credit and making the amounts larger for many such families is an excellent way to place needed income in the hands of low-income families who will spend it quickly. We strongly favor calculating the value of the refundable Child Tax Credit starting with the first dollar of earnings, as provided in The American Recovery and Reinvestment Tax Act of 2009 introduced in the House.
As the debate comes to a close over the specifics of how the Economic Recovery and Reinvestment Act should be structured, Congressional leadership and the White House should pay special attention to opportunities to enact policies that will achieve multiple urgently needed ends. The House version of the Child Tax Credit – by getting money into the hands of those who need it most – and will spend it the fastest – would do just this. Opportunities for such twofers are extremely rare. It would be a shame to pass this one up.