Six days into the Joe Biden Administration, it’s too early to say how his economic policy agenda will fare on Capitol Hill. But to grasp the intellectual and political basis of Bidenomics, a good place to start is his proposal to provide additional financial support to the more than one in seven American children who are currently living in poverty.
Part of Biden’s $1.9 trillion COVID-19 relief package would beef up a number of programs for the working poor, including food stamps and the earned-income tax credit, which is effectively a wage subsidy. These are worthwhile proposals, but arguably the most consequential idea that Biden has put forward is to expand the federal child tax credit, a program that dates back to the Clinton Administration, and turn it into a new monthly cash payment for the vast majority of families with children, including those families with the lowest incomes. The full details of the child-tax-credit plan haven’t been announced. But according to a draft cited by Jeff Stein, of the Washington Post, most parents would receive monthly payments of up to three hundred dollars a month for each child under six, and payments of up to two hundred and fifty dollars a month for each child between the ages of six and seventeen.
This proposal is important in a number of ways. The biggest one, its backers claim, is that it would drastically reduce the incidence of childhood poverty, which has long been a chronic problem in the United States. (The Census Bureau annually updates the poverty thresholds. For a family of four, the threshold in 2021 is an annual income of twenty-six thousand five-hundred dollars.) To fully gauge the impact of the Biden proposal, we need to know its final details and other unknowns, such as the path of the over-all economy. But we can get some idea of its likely impact by looking at an academic study of a very similar proposal, the American Family Act, which Senators Michael Bennet, of Colorado, and Sherrod Brown, of Ohio—both Democrats—introduced in 2019.
According to researchers at Columbia University’s Center on Poverty and Social Policy, full implementation of the American Family Act would cut the child poverty rate from 14.9 per cent to 9.3 per cent. Obviously, that would be a historic achievement. And the impact on children in deep poverty—those living in households whose income is less than half of the official poverty line—would be even more dramatic, the Columbia study found. Among Americans under eighteen, the deep poverty rate would be cut in half, from 4.6 per cent to 2.3 per cent.
Because low-income households tend to be disproportionately Black and Latino, members of these groups would gain a great deal from the Biden proposal. The expansion in the child tax credit would “lift 9.9 million children above or closer to the poverty line, including 2.3 million Black children, 4.1 million Latino children, and 441,000 Asian American children,” Chuck Marr, the senior director at the Center on Budget and Policy Priorities, a liberal think tank, wrote last week. Projections like these explain why both progressive and centrist Democrats are enthused by the Biden proposal. Under the COVID-19 relief package, the expansion of the child tax credit would last a year and cost upward of a hundred billion dollars. But if the proposal does become law, the clear intention of the Administration and its backers is to go back to Congress to make it permanent. “The cost would be about one trillion dollars over ten years,” Marr told me. “That’s about half the size of the 2017 tax bill, and it would cut child poverty nearly in half. To me, that’s a good investment.”
By targeting Americans that the pandemic has hit the hardest, and also addressing lasting inequities, the child-tax-credit proposal is emblematic of Bidenomics, which is based on the idea that the current moment, like the early nineteen-thirties, represents a moment of great potential as well as great peril. Last October, when Biden spoke at the summer retreat of Franklin Delano Roosevelt, in Warm Springs, Georgia, he said the “the pain striking at the heart of our country goes back not months but years.” He added, “If you’re giving me the honor of serving as your President, clear the decks for action.”
That sounded like an unequivocal call to economic arms, but the child-tax-credit proposal also reflects another Biden principle, one which is contested by some progressives. This is the idea that, to achieve important goals, the new Administration doesn’t necessarily have to introduce big new programs, such as a universal basic income or Medicare for All, but can succeed by improving existing programs. The child tax credit dates back to the 1997 Taxpayer Relief Act, when Congress introduced a tax credit of five hundred dollars per child targeted at middle-income and high-income households. In 2001, the Bush Administration raised the credit to a thousand dollars per child, and changed the nature of the program by making it partially refundable. From then on, certain low-to-middle-income families that didn’t pay enough in taxes to exhaust the credit could claim some of the remaining balance at the end of the tax year, and the I.R.S. would send them a check.
The Obama Administration made the child tax credit more accessible to lower-income children, and the 2017 G.O.P. tax bill doubled it, from a thousand to two thousand dollars, setting a maximum of fourteen hundred dollars for the refundable portion. Two big drawbacks remained. Fourteen hundred dollars a year isn’t very much these days, and, in any case, approximately twenty-seven million children lived in low-income households that didn’t earn enough to qualify for a maximum refund. For families with less than fifteen thousand dollars in annual income, the gains were negligible.
By making the tax credits fully refundable, increasing their size, and paying them out on a monthly basis rather than an annual one, the Biden proposal would eliminate these problems, its advocates say. Right now, Marr pointed out in his article, a married couple with one earner that has two children, aged three and seven, is eligible for a tax credit of $2,625. “Under the Biden plan,” he wrote, “they would receive the full Child Tax Credit of $3,600 for their son and $3,000 for their daughter, or a gain of $3,975 for this family.”
When it is couched in these terms, the Biden proposal seems hard to find fault with. But not all progressives are big believers in refundable tax credits, which can be tricky to access and complicated to administer. In a blog post written last week, Matt Bruenig, the founder of the People’s Policy Project, a crowdfunded think tank, argued that expanding the child tax credit and paying it out on a monthly basis “would be a train wreck.” At the moment, many poor families don’t file any tax returns. To receive their monthly child-tax-credit payments, these families would have to give advance notification of their income to the I.R.S., which would administer the plan, and then confirm their income in a tax return at the end of the year, Bruenig noted. Moreover, if a family ended up earning more than it had predicted, it would have to repay some of the cash it had received, which could cause great difficulty.
In this area, as in others, such as health care, the objection from the left is that Biden’s proposals don’t go far enough. Rather than further complicating the tax system by expanding the child tax credit and changing how it is distributed, Bruenig argued, the federal government should just create a universal system of regular payments, or “childhood allowances,” which already exist in countries like France, Norway, and Sweden. “We don’t use tax credits to get money to the elderly, or the disabled, or the unemployed,” he wrote. “Instead we send these populations money through Social Security and Unemployment Insurance. That is the appropriate model for child benefits.”
When I raised some of Bruenig’s points with Chuck Marr, he conceded that there was “a major design issue” in making sure that low-income families weren’t put in a position where they would have to pay back more money than they have. But he argued that this and other challenges were far from insurmountable. The fact that the system would be fully refundable rather than partially, which it is at the moment, would make it less complicated, he said. Furthermore, he said, the I.R.S. has already demonstrated the capacity to make payments to large numbers of low-income families, based on its distribution of stimulus checks that were provided for in the CARES Act, last March, and the second stimulus package passed by Congress, in December.
