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Effectively, the new credit means that everyone gets the full refundable credit once they earn $14,000 a year or more, whereas under previous law parents of three kids making as much as $34,000 a year still weren’t getting the full benefit.

As the chart indicates, this change is targeted at families earning in the $20,000 to $40,000 a year range, not families with little or no income. The Tax Policy Center estimates that about 58 percent of the tax benefit goes to families earning $20,000 to $40,000 a year, with almost all of it (87.2 percent) going to families making $10,000 to $50,000. The average benefiting family gets $1,130 more a year from the change.

The law also changes the refundable maximum. Under current law, the maximum is indexed for inflation. It had increased to $1,600 for 2023 and was due to keep increasing. The $2,000 maximum credit for families who owe income taxes, by contrast, was not indexed for inflation. Over time, observers expected the refundable maximum to reach $2,000 due to inflation and thus become irrelevant.

The Wyden-Smith deal speeds up that convergence by increasing the 2023 maximum to $1,800, then setting it to $1,900 in 2024 and $2,000 in 2025. Both those numbers and the total $2,000 credit will be indexed for inflation. By 2025, the maximum is done away with, and poor taxpayers get the same $2,000 credit as everyone else from that year onward. Better yet, all taxpayers get a constantly increasing child credit thereafter. Like the change to the phase-in approach, most of the benefit from this policy goes to those making $20,000 to $40,000 a year, per the Tax Policy Center. The average affected household gets about $350 back a year.

Finally, the deal includes a “lookback” provision for tax years 2024 and 2025. This allows a taxpayer to use the previous year’s income to qualify for the credit, if doing so results in a bigger benefit. This rule has been introduced in the past to account for emergencies (like Covid), and it’s generally beneficial to families enduring temporary difficulties. Under current law, a parent who earned $30,000 in 2023 but spent all of 2024 unemployed would get nothing from the child tax credit in the latter year. But with a lookback, they could get the full credit.

How big a deal is this?

Putting all the provisions together, the Center on Budget and Policy Priorities estimates that the deal will lift about 400,000 children out of poverty, and make another 3 million less poor, in its first year. By 2025, it will be keeping 500,000 children a year out of poverty.

While nothing to sneeze at, this is a far cry from the roughly 3 million children that would been lifted out of poverty in 2022 if the 2021 expansion of the credit had been extended. It is a dramatically more modest step. It also takes as a given that the credit will not be available to families with zero earnings, a key disagreement between Democratic and Republican legislators on which the latter have shown no flexibility.

All that being said, the CBPP authors note that the proposal is very well-targeted, and its CTC provisions “direct all of their benefits to children in low-income families who receive less than the full credit under current law.”

Some Democratic legislators, notably House Ways and Means ranking member Richard Neal (D-MA) and longtime child credit champion and Appropriations ranking member Rosa DeLauro (D-CT), have signaled opposition to the deal, arguing it does not go far enough.

And, indeed, for supporters of the 2021 credit, it does not go nearly far enough. By some other standards, it’s also a bit of a disappointment. When I wrote about a possible compromise back in November, I envisioned a bill that increased the credit’s phase-in rate to 30 percent and reduced the earnings minimum from $2,500 to $0. Neither of those changes made it into the final deal. I think they’re logical next steps for antipoverty advocates to demand.

But 400,000 children taken out of poverty is also nothing to sneeze at, and some business credits with bipartisan support are a pretty paltry price to pay. So too is the early expiration of a program intended for the dark days of 2020, when Covid was causing mass unemployment, and not 2024 when unemployment is under 4 percent.

I expect that as the measure reaches the House and Senate floors, supporters of the child credit will come around and back it. The alternative is a status quo that does even less for children.

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