End of monthly child tax credit payments, end cushion for family budgets

Families are bracing for bank balances to suffer in mid-January, unlike the monthly child tax credit payment.

More than 30 million households began receiving up to $ 300 per child in July after Congress temporarily turned an annual tax break into a near-universal monthly benefit. Families spent the money on essentials like groceries and hid it as emergency savings, the researchers found.

Democrats hailed the expansion as a simple but revolutionary policy that drastically reduced child poverty and confidently proclaimed that the credit would prove to be so popular and beneficial that Congress would not let it expire.

He has just died.

The Democrats’ version of the $ 2 trillion education, health care and climate bill would have extended payments until 2022, but Sen. Joe Manchin (D., W.Va. ) effectively killed that proposition last month. While some Republicans support some expansion of the child tax credit, they oppose the larger bill for its expansion of government assistance and tax increases.

When Democrats return to Washington, they will attempt to revive and rebuild their $ 2 trillion education, health and climate bill to win Sen. Joe Manchin (D., W.Va.) ‘s deciding vote.


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Today in heavily divided Congress, there is no clear political path to reinstate the expanded tax break, leaving parents with the prospect of balancing family budgets without additional help at a time when prices are falling. consumption is increasing at their fastest rate in decades.

When Democrats return to Washington, they will attempt to revive and rebuild the bill to win Mr Manchin’s decisive vote.

His objections included the budget strategy of only counting one year of costs for expanding children’s credit when Democrats see it as a prelude to permanent policy. Many Democrats preferred a multi-year extension, but chose a year to keep the total cost of the bill within Mr. Manchin’s target range.

Mr Manchin’s rejection could force Democrats to choose between credit and other priorities. He also criticized the credit for being too generous for high-income, non-work-related households.

If credit returns soon, Democrats could consider a double payment in February to make up for a missed payment in January. The exact timing and monthly amounts would depend on when the law is enacted, treasury officials said, and the administration is focused on making payments as soon as possible.

Veronica Moreno, 30, relied on credit to cover basic needs after her temporary $ 15 an hour job ended by enrolling people for Covid-19 vaccines in August. The Ellicott City, Md., Resident applied the $ 750 monthly payment to his bills, including utilities and internet service. Her children, aged 15, 14 and 10, must go online for homework and distance learning if schools stop in-person learning again.

Ms. Moreno leaves flyers in her neighborhood advertising her notarial services and is looking for a new job. She hopes to work remotely because she has type 1 diabetes and worries about complications from Covid-19.

But the potential financial consequences of ending payments are significant. “I try to keep smiling for my kids and just to let them know that everything is fine,” Ms. Moreno said in December. “But I had panic attacks thinking about the next month.”

The child credit existed before 2021 in a very different form, and this is the version in place for 2022. Families can get up to $ 2,000 per child on their tax returns; low-income families do not receive the full benefit or any money during the year.

In 2021, the extended credit has increased the annual value to $ 3,000 for most households; created a bonus of $ 600 for children under 6; added monthly payments; and made lower income families eligible for full credit. On their 2021 tax returns, people will claim the credit, subtracting all monthly payments from their total eligibility.

Democrats made the changes in March to party line votes. The credit has become more visible to families as a monthly income than as an annual line on a tax return. The expansion included features Democrats are most keen to preserve, as they pump money into low-income households and can be sold as tax cuts for middle-income people.

“I’ve been in this place for many years now, and it has no problem extending tax cuts when it comes to tax cuts for the rich,” frustrated Senator Michael Bennet (D. , Colorado), one of the major lenders of the credit expansion, said in December.

“I have been in this place for many years now, and it has no problem extending tax cuts when it comes to tax cuts for the rich,” said Senator Michael Bennet (D ., Colorado) in December.


Mandel Ngan / Agence France-Presse / Getty Images

But there’s little room for a bipartisan deal, as the changes Democrats are emphasizing are ones that elicit opposition even from Republicans who support a bigger child tax credit. Senator Marco Rubio (R., Fla.), Who pushed for credit expansion under the 2017 GOP tax law, opposes feature that allows families to make money without earning income .

“The bipartisan opposition has killed the Biden administration government’s child benefits because it’s anti-work,” Rubio said. “We now have the opportunity to take advantage of the 2017 Child Tax Credit and further expand support for working parents without these poor results. “

Families used the credit to pay for necessities, the researchers found.

The main items spent by households were food, essential bills and clothing, according to an analysis of data from the Census Bureau of the Social Policy Institute at Washington University in St. Louis. More than 70% of families mainly spent the payments or used them to pay off debts, according to the analysis. A little less than 30% largely retained it.

The share of families with children who reported not having enough to eat sometimes or often fell to 8.4% from 11% after the extended credit took effect, according to census data.

Many families were clinging to at least a little money. The median bank account balance of families receiving the loan was 65% higher at the end of September than it was two years ago, according to a recent analysis of bank data from the JPMorgan Chase Institute. This compares to 49% for households that did not get the credit.

“We’re going to see a more precarious situation for families,” said Leah Hamilton, associate professor at Appalachian State University and co-author of the Social Policy Institute analysis.

This short-term cash injection policy can have long-term consequences as it would discourage some low-income people from working, said Bruce Meyer, professor at the Harris School of Public Policy at the University of Chicago. He said he had effectively resumed unconditional cash assistance to families that existed before the United States changed its welfare policy in 1996.

“We turned this experiment upside down 25 years ago, and we have seen employment increase, poverty decrease for single parents,” said Meyer. “It’s not just ‘you give people money and it’s money in their pocket,’ end of story.”

Stephanie and Jamie Herrington at home with their daughter Lily. The child tax credit payments “gave us some leeway, just being able to go to the supermarket and not worry when you see the prices,” Herrington said.


Céleste Noche for the Wall Street Journal

Jamie and Stephanie Herrington’s expenses plummeted in the first few months of the pandemic, and they cut their mortgage payments by refinancing. With stimulus checks and the payment of $ 300 per month for their 4-year-old daughter, the Lebanon, Oregon family, for the first time built a large emergency savings fund.

The couple also spent the money on clothes, Christmas gifts and meals outside. Mr Herrington, a lab technician who earns $ 62,000 a year, said he was confident their budget could handle higher inflation. “It allowed us to breathe, to be able to just go to the supermarket and not worry when you see the prices,” he said.

Now the family is preparing to cut discretionary spending and dip into their savings of $ 17,000. Mr Herrington, 39, plans to replace his car, which has driven more than 200,000 miles. He needs dental treatment. The family home needs repairs.

“It was good not to live off paycheck after paycheck,” Herrington said.

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Write to Rachel Louise Ensign at [email protected] and Richard Rubin at [email protected]

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