WASHINGTON – In the past year, the government has sent stimulus checks to half the country – twice.
Now Democrats want to do something even more ambitious: send money every month to tens of millions of low-income people with children.
As part of their latest coronavirus stimulus package, Democrats are drafting a proposal to expand and turn a long-standing children’s tax credit – normally taken once a year at tax time – into a payment monthly. They aim to send $ 250 each month per child – $ 300 for children under six – in what would be the country’s very first child allowance.
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, then it can too.
“Families wait year round for tax filing season because their earned income and child tax credits cover basic needs like overdue bills or medical care,” Ron Wyden, the Senate’s senior Democratic tax writer said in a statement. “Making at least the child tax credit payable in advance would 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 to the Treasury Department on how this might work, and it’s unclear how quickly the department could roll out such a program.
It would also be expensive, and is expected to cost over $ 100 billion per year.
Some Republicans are likely to support the plan, a prominent conservative tax expert predicted, although it could be a divisive issue for GOP lawmakers.
The proposal has not been widely noticed, but it is one of the most significant changes to the tax code currently made 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 many would be better if they could take the credit in monthly installments, as this would create a reliable income stream that would help them deal 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 get a fraction of that because the provision – designed to encourage work – is tied to people’s income, 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 an additional $ 600 for children under six. They also want to remove the work requirement so that people can get the full 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 while the poor are at the center of the initiative, it would be open to others as well – although monthly vouchers would make less sense for those with higher incomes. For them, the child tax credit, like any other relief, 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 they could achieve it.
“The fact that the IRS was able to do it so quickly for so many people with PID takes comfort in their ability to be able to do it on a regular basis for this group of taxpayers,” said a congressional aide involved in the development of the plan.
In the past year, the IRS has twice sent checks to about half the population, including millions of hard-to-reach people whose incomes are so low they are exempt from filing income tax returns. 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. While it took the IRS months to send 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 wealth of information about people’s direct deposits.
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’s also the question of what happens if someone ends up receiving too much – lawmakers tend to be reluctant to ask. overpayments to be returned. With the recent stimulus payments, Congress allowed recipients to keep the difference if they received more than they should have.
It would also be an entirely new mission for the IRS, which Democrats have long complained about already being too stretched.
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 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 little more than a social spending program under the guise of a tax provision.
“There will be a split within the party,” he said. “Some Republicans will certainly 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 determine it. But now Democrats say they are trying to work out the details.
They are considering that the Treasury set up an online tool where recipients could declare 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, although details are unclear.
Democrats say they plan to give the IRS a lot more money to set up the program. But they still have to consult with the Treasury on logistics and, with the change of administration, this department continues to be staffed.
“We will have to work on the details of the distribution with the IRS,” the senator said. Sherrod Brown (D-Ohio). “But I made it clear that I wanted Congress to make this investment in children and workers, who need help getting through the pandemic.”