The American Rescue Plan included a fully refundable child tax credit. The credit provides $3,600 per year for children under 6, and $3,000 per year for children between 6 and 17. The credit is paid out monthly, and slowly phases out for single parents who earn more than $112,500 and married couples earning more than $150,000.
This legislation marks a sea change in government policy towards poor children. For years, the poorest children have been largely excluded from income support by eligibility rules that made assistance available primarily to families with labor market income. The new tax credit, in contrast, is unconditional, and with full participation, the new tax credit would sharply reduce deep poverty among children.
Yet the legislation is seriously flawed in its design and implementation has been problematic. The upshot is that many of the poorest children – the children most in need of assistance – will not benefit from what should be a revolutionary new policy.
There are two design flaws, both of which have been emphasized by Matt Bruenig of the People’s Policy Project (e.g., here, here, and here). The first is that many of the poorest families – the families most in need of financial assistance – do not file tax returns, and hence will not automatically get checks. This problem could have been ameliorated in the implementation phase, but the IRS has so far failed to make it easy for eligible non-filers to enroll.
The second problem is that, due to the combination of means-testing and payment in advance (rather than in arrears), many families will be subject to unexpected clawbacks at the end of the year.
What is troubling about this is that it was completely unnecessary. Poverty analysts have been flagging these issues to policymakers for years, and there were relatively straightforward design choices that could have largely avoided these problems.
Perhaps these problems will be fixed when the legislation is reauthorized, or simply through improved implementation by the IRS. I hope so. But the underlying inability of our political system to make sound policy choices and to implement them competently is an ongoing problem that progressives need to take much more seriously. The fact is that implementing a child allowance that includes the poorest families is *much* easier to do than most of the other items on the progressive agenda, which includes daunting challenges such as decarbonization policy and health care reform.
My (speculative) view is that some of the current legislative dysfunction is due to the polarized state of our politics, and if (somehow) the Republican party moderates and our democracy survives, the quality of policymaking will at least modestly improve. But part of the problem is that many progressive voters, activists, and even some policymakers do not take seriously how difficult it is for the government to solve complex problems; they believe that the government can solve problems if only leaders are well-intentioned.
This is a point that classical liberals emphasize. They are partly right about the diagnosis, but not in their proposed solution, which is to shrink the government rather than working to improve it.